COH share price in focus
Cochlear is a medical device company founded in 1981 in Sydney. It designs, manufactures and distributes three different hearing implants for different medical situations.
Cochlear is a global leader in hearing devices and has provided over 750,000 implantable devices. It has over 5,000 employees throughout more than 50 countries.
Cochlear’s mission is to improve its customers’ quality of life who suffer from hearing-related conditions.
The key metrics
If you’ve ever tried reading a company’s income statement on the annual report, you’ll know just how complex it can get. While there are any number of ways you could slice up the statement, three key figures are revenue, gross margin, and profit.
Revenue is important for obvious reasons – everything else (profit, margins, return on equity etc.) is downstream of a company’s ability to generate sales and revenue. What we’re looking for is not so much the absolute number, but the trend. COH last reported an annual revenue of $2,236m with a compound annual growth rate (CAGR) over the last 3 years of 14.3% per year.
The next thing we’ll want to consider is the gross margin. The gross margin tells us how profitable the core products/services are – before you take into account all the overhead costs, how much money does the company make from selling $100 worth of goods and services? COH’s latest reported gross margin was 74.9%.
Finally, we get to profit, the real headline number. Last financial year Cochlear Ltd reported a profit of $357m. That compares to 3 years ago when they made a profit of $324m, representing a CAGR of 3.3%.
Financial health of COH shares
Next, we could consider the capital health of the company. What we’re trying to work out is whether the company is generating a reasonable return on their equity (the total shareholder value) and whether they have a good safety buffer. One important measure to consider is net debt. This is simply the total debt minus the company’s cash holdings.
In the case of COH, the current net debt sits at -$270m. A high number here means that a company has a lot of debt which potentially means higher interest payments, greater instability, and higher sensitivity to interest rates. A negative value on the other hand indicates the company has more cash than debt, which can be seen as good (a big safety buffer) or bad (inefficient capital allocation).
A metric that might be more valuable to us is the debt/equity percentage. This tells us how much debt the company has relative to shareholder ownership. In other words, how leveraged is the company? Cochlear Ltd has a debt/equity ratio of 13.2%, which means they have more equity than debt.
Finally, we can look at the return on equity (ROE). The ROE tells us how much profit a company is generating as a percentage of its total equity – high numbers indicate the company is allocating capital efficiently and generating value, while a low number suggests that company growth may be starting to slow. COH generated an ROE of 19.9% in FY24.
What to make of COH shares?
As a growth company, one way to put a general prediction on the COH share price could be to compare its price-to-sales multiple over time. Currently, Cochlear Ltd shares have a price-sales ratio of 8.46x, compared to its 5-year average of 9.18x, meaning its shares are trading below their historical average. This could mean that the share price has fallen, or sales have increased, or both. In the case of COH, revenue has been growing over the last 3 years. Please keep in mind that context is important – and this is just one valuation technique. Investment decisions can’t just be based on one metric.
The Rask websites offer free online investing courses, created by analysts explaining things like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets! Both of these models would be a better way to value the COH share price.
