The share price of Australian-listed healthcare success story Cochlear Limited (ASX: COH) hit a record high of $84 in 2011 before a recall of its Nucleus 5 product saw the share price tumble below $50. The share price has recovered somewhat and now sits at $60- well below its 2011 high.
At the current share price, investors should be well rewarded over the long term as Cochlear offers strong long-term growth prospects, coupled with a strong and growing dividend yield of over 4%. I am bullish on the long-term potential of the company for the following reasons:
- Cochlear's potential market is huge. Currently, Cochlear's hearing devices only penetrate a very small percentage of the addressable market, possibly as low as 1%. A growing Asian middle-class, along with increased government spending should see the demand for Cochlear hearing implants surge over the next 20 years.
- Cochlear has built a very strong reputation for superior quality and reliability of product. The company benefits from established relationships with surgeons who recommend Cochlear implants. It will take substantial time and cost for a competitor to build up the reputation that Cochlear currently has within the market, despite the product recall in 2011.
- The business generates strong cash flows, has a low level of debt and has strong return on equity. The provides the company with a very strong foundation to fund future growth and invest in research and development initiatives.
While there is always a risk that a competitor will develop a superior product and take market share away from Cochlear, I believe this risk is small given Cochlear's current market dominance. Cochlear is a stock to hold for the long term and long-term investors will be well rewarded by purchasing shares today.
