Yahoo Finance Here's Why We Think Cochlear (ASX:COH) Might Deserve Your Attention Today
Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Cochlear (ASX:COH). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
View our latest analysis for Cochlear
How Quickly Is Cochlear Increasing Earnings Per Share?
Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That means EPS growth is considered a real positive by most successful long-term investors. Shareholders will be happy to know that Cochlear's EPS has grown 34% each year, compound, over three years. This has no doubt fuelled the optimism that sees the stock trading on a high multiple of earnings.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. EBIT margins for Cochlear remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 25% to AU$2.1b. That's encouraging news for the company!
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
Fortunately, we've got access to analyst forecasts of Cochlear's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Cochlear Insiders Aligned With All Shareholders?
It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
We note that Cochlear insiders spent AU$256k on stock, over the last year; in contrast, we didn't see any selling. This is a good look for the company as it paints an optimistic picture for the future. It is also worth noting that it was Independent Non-Executive Director Christine McLoughlin who made the biggest single purchase, worth AU$68k, paying AU$271 per share.
The good news, alongside the insider buying, for Cochlear bulls is that insiders (collectively) have a meaningful investment in the stock. Given insiders own a significant chunk of shares, currently valued at AU$87m, they have plenty of motivation to push the business to succeed. That's certainly enough to let shareholders know that management will be very focussed on long term growth.
Does Cochlear Deserve A Spot On Your Watchlist?
You can't deny that Cochlear has grown its earnings per share at a very impressive rate. That's attractive. On top of that, insiders own a significant stake in the company and have been buying more shares. So it's fair to say that this stock may well deserve a spot on your watchlist. One of Buffett's considerations when discussing businesses is if they are capital light or capital intensive. Generally, a company with a high return on equity is capital light, and can thus fund growth more easily. So you might want to check this graph comparing Cochlear's ROE with industry peers (and the market at large).
The good news is that Cochlear is not the only stock with insider buying. Here's a list of small cap, undervalued companies in AU with insider buying in the last three months!
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
