Yahoo Finance Should You Be Happy With Cochlear Limited’s (ASX:COH) 9.9% Earnings Growth?
After looking at Cochlear Limited’s (ASX:COH) latest earnings announcement (30 June 2018), I found it useful to revisit the company’s performance in the past couple of years and assess this against the most recent figures. As a long-term investor I tend to focus on earnings trend, rather than a single number at one point in time. Also, comparing it against an industry benchmark to understand whether it outperformed, or is simply riding an industry wave, is a crucial aspect. Below is a brief commentary on my key takeaways.
Check out our latest analysis for Cochlear
Were COH’s earnings stronger than its past performances and the industry?
COH’s trailing twelve-month earnings (from 30 June 2018) of AU$245.8m has increased by 9.9% compared to the previous year. However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 16.2%, indicating the rate at which COH is growing has slowed down. To understand what’s happening, let’s take a look at what’s occurring with margins and if the whole industry is feeling the heat.
Over the last few years, revenue growth has been lagging behind which suggests that Cochlear’s bottom line has been driven by unmaintainable cost-cutting. Inspecting growth from a sector-level, the Australian medical equipment industry has been growing, albeit, at a unexciting single-digit rate of 3.3% in the prior twelve months, and 9.4% over the past five. This growth is a median of profitable companies of 5 Medical Equipment companies in AU including Nanosonics, ITL Health Group and SDI. This means that any near-term headwind the industry is enduring, Cochlear is less exposed compared to its peers.
In terms of returns from investment, Cochlear has invested its equity funds well leading to a 40.2% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 21.9% exceeds the AU Medical Equipment industry of 6.2%, indicating Cochlear has used its assets more efficiently. However, its return on capital (ROC), which also accounts for Cochlear’s debt level, has declined over the past 3 years from 41.6% to 38.8%.
What does this mean?
Though Cochlear’s past data is helpful, it is only one aspect of my investment thesis. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? I recommend you continue to research Cochlear to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for COH’s future growth? Take a look at our free research report of analyst consensus for COH’s outlook.
Financial Health: Are COH’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 30 June 2018. This may not be consistent with full year annual report figures.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
