Cochlear Limited (ASX: COH) has, for a long time, been a favourite amongst customers as it has produced the highest quality implantable devices for the hearing impaired for over 30 years. However, its stock has been largely out of favour with both analysts and investors in recent years due to lower than hoped for periodic results as well as an increasing presence of competitors in the industry.
Before you invest in Cochlear, here are some factors that investors should be aware of:
Competition
There is an increased presence of competitors in the industry and many investors believe they pose a threat to the long-term prospects of the local manufacturer. Cochlear's stock even fell by 4.8% in a single day of trading last year, following media reports that Chinese company Nurotron Biotechnology would compete for lucrative Chinese government contracts on a low-cost basis.
While Cochlear still controls 65% of the global market, it should be noted that there was always going to be an increase in competition in the industry, and while other entrants may be able to offer cheaper products, I believe Cochlear's products will still be the preferred alternative for most clinicians and customers.
The company's products are also protected by patents which will provide protection from its competitors.
Economies of scale
In addition to producing the highest quality products, it also produces the most of them which allows the company to keep costs lower.
Outlook
Thanks to a reduction in hedging revenue as well as rising costs from new product launches, the company has warned that it faces flat profit growth over FY 2014, while it expects to return to profit in 2015. Its product sales have also been relatively flat while patients have waited for its new products, such as the Nucleus 6, to be released.
Foolish takeaway
Flat profit growth is amongst the most painful things that a short-term investor could read, but the words can create a buying opportunity for investors focused on the long-term. Cochlear is a quality company and while its short-term outlook might not be outstanding, patience is the key. The company will report its interim results on Tuesday 11 February.
