Cochlear Limited (ASX: COH) shares have not had a good year in 2020 so far. After topping out at a new (and still standing) all-time high of $251.55 back in February, the Cochlear share price is today asking just $200.50 at the time of writing. That’s more than a 20% discount to the February high watermark. Now just because a share has pulled back 20% from its most recent high, this does not mean it’s automatically ‘on sale’ or a ‘good deal’. But it does merit some digging in my view, particularly when the company in question is as high calibre as Cochlear.
Lend me your ears…
Cochlear is one of the most successful ASX shares in the healthcare space. It famously pioneered the ‘Cochlear implant’ – a hearing aid device now universally recognisable. The company has continued to remain in the vanguard of hearing aid technology and is still a market leader in the space. It now has a truly global presence, with 20% of its sales now coming from emerging markets. It holds a 60% share of its global product market.
However, like many ASX companies, both Cochlear and its shares have been under pressure this year due to the coronavirus pandemic. In its FY2020 earnings report released last month, Cochlear reported a loss of $238.3 million for the year on revenues of $1.35 billion, mostly due to surgery deferrals as a result of the pandemic. As such, the company will not be paying a final dividend in 2020.
Why is the Cochlear share price a buy today then?
I think Cochlear is worth a good look today, even after its disappointing earnings report. Yes, Cochlear has taken a massive hit this year. But the market that it serves (people with a hearing impairment) hasn’t gone anywhere. Cochlear serves a large customer base with inelastic demand for its products. Many of the company’s patients are born with a hearing impairment, which means they have a fair chance of being Cochlear customers for life. The company already has a dominant position in advanced economies around the world and as incomes rise in emerging markets, more and more potential customers are finding Cochlear as well.
As such, I think the pullback we’ve seen in the Cochlear share price this year presents a solid buying opportunity. Quality companies like Cochlear don’t go on sale often, and so I think this is a rare chance to open a position or double-down if you already have one.
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Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. The Motley Fool Australia has recommended Cochlear Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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