Why has the Cochlear (ASX:COH) share price lost 7% in a month?

The hearing implant giant has had a difficult run of late…

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a woman puts her fingers in her ears with a pained expression on her face with her eyes closed as though trying to block hearing bad news or an unpleasant loud noise.

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The Cochlear Ltd (ASX: COH) share price started off the week’s trading in the red but clawed back 1.88% yesterday to finish at $219.29.

That ends a difficult month for the manufacturer of the revolutionary cochlear hearing implant. The company’s share price has slipped a further 7.6% out of the money in the last month, well ahead of the S&P/ASX 200 Index (ASX: XJO)’s loss of just 0.39% in that time.

Whilst there’s been no market sensitive information for the company as of late, it’s worthwhile taking a look at what’s driving Cochlear shares lately.

Why has the Cochlear share price dropped 10% this past month?

If we take a step back and look at what’s happened even earlier than September, it’s clear Cochlear shares have been stuck in a descending channel since the company released its FY21 earnings results on 20 August.

In its report for FY21, Cochlear recognised a series of positive growth levers that translated directly to its financial performance. For instance, implant unit sales grew 15% year on year to 36,546 while sales revenue came in 10% higher from last year.

This carried through to Cochlear’s bottom line. The company recorded a 54% year on year increase in underlying net profit – ahead of company guidance – and a corresponding 60% increase in its full year dividend to $2.55 per share.

These are undoubtedly positive results. However, at the time, the market was left searching for more. It seemed the company’s earnings figures – whilst favourable on an absolute basis – where well behind consensus forecasts.

Failing to meet the forecasts of analysts at research and investment firms at earnings time generally spells bad news for a company’s share price.

Numerous studies have shown companies who ‘miss’ analyst’s published forecasts during earnings season tend not to perform too well after the fact. That’s because investors tend to reward companies who post stronger than expected earnings, anticipating these to carry higher valuations into the future.

By the time September arrived, the Cochlear share price had already given back around 10% since its earnings results roughly two weeks earlier.

A regain in confidence, and perhaps some investors seeing a bargain in the cheaper Cochlear share price, helped prop the company’s shares back towards the August highs. However, an announcement late last month regarding a potential patent infringement sent prices marching back down.

According to the University of Pittsburgh, it believes Cochlear has infringed on one of its patents, although the company claims the patent in question is invalid.

Nonetheless, investors were quick to punish Cochlear again, sending its shares a further 9% further into the red. That’s a $22 per share loss in a matter of weeks, just to show the rate of decline.

It’s also worth noting that the S&P/ASX 200 Health Care index (XHJ) is also 5.61% into the red over the past month as well, indicating weakness in the broader ASX healthcare sector lately.

It appears these factors are weighing on the Cochlear share price over the past few weeks.

Cochlear share price snapshot

The Cochlear share price has climbed almost 16.5% into the green this year to date.

However, over the last 12 months, it is just 1% ahead, well behind the benchmark index’s return of around 19% in that time.

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The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Cochlear Ltd. The Motley Fool Australia has recommended Cochlear Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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