After reading Cochlear Limited's (ASX:COH) most recent earnings announcement (30 June 2019), I found it useful to look back at how the company has performed in the past and compare this against the latest numbers. 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.
Could COH beat the long-term trend and outperform its industry?
COH's trailing twelve-month earnings (from 30 June 2019) of AU$277m has jumped 13% 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 17%, indicating the rate at which COH is growing has slowed down. Why could this be happening? Well, let’s take a look at what’s occurring with margins and if the whole industry is experiencing the hit as well.
In terms of returns from investment, Cochlear has invested its equity funds well leading to a 38% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 20% exceeds the AU Medical Equipment industry of 9.5%, 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 36% to 35%.
What does this mean?
While past data is useful, it doesn’t tell the whole story. While Cochlear has a good historical track record with positive growth and profitability, there's no certainty that this will extrapolate into the future. 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 2019. This may not be consistent with full year annual report figures.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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