Demant is a global leader in hearing healthcare, specializing in innovative hearing aids, diagnostics, and hearing care solutions. With a vertically integrated business model and a strong focus on research and development, the company continues to drive advancements in audiology, including AI-powered hearing aids. Supported by favorable demographic trends and expanding market opportunities, Demant has demonstrated strong financial performance and resilience. The question remains: Should this hearing healthcare leader have a place in your portfolio?
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For full disclosure, I should start by mentioning that at the time of writing this analysis, I do not own any shares in Demant. If you would like to see the stocks in my portfolio or copy my portfolio, you can do so on eToro, You can find instructions on how to do this here. I don't own any stocks in competitors of Demant either. Thus, I have no personal stake in Demant. If you want to purchase shares (or fractional shares) of Demant, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started with investing with as little as $50.
The Business
Demant is a Danish company and a global leader in hearing healthcare, operating across hearing aids, hearing care services, and diagnostic solutions. It has a presence in over 30 countries and distributes its products in more than 130. The company’s business spans three key areas. The hearing aids segment, which accounts for 45% of revenue, develops, manufactures, and wholesales advanced hearing aids under brands such as Oticon, Bernafon, Sonic, and Philips Hearing Solutions. The hearing care segment, contributing 44% of revenue, provides personalized hearing aid services through a network of more than 3.500 clinics worldwide, ensuring long-term patient engagement and retention. The diagnostics segment, representing 11% of revenue, is a market leader in hearing and balance assessment equipment, supplying audiologists and ENT specialists with essential tools and generating recurring revenue from services and consumables. Demant’s moat lies in its vertically integrated business model, allowing the company to control every stage of the hearing healthcare journey, from research and development to manufacturing, distribution, and direct patient care. Its R&D hubs in Denmark, Poland, and Malaysia drive continuous innovation in hearing aid technology. The company’s extensive retail network strengthens its ability to capture demand, while its centralized manufacturing facilities in Poland and Mexico provide cost efficiencies that support long-term margin expansion. By owning both the product and service ecosystem, Demant enhances customer loyalty and increases repeat purchases. As a key player with strong brand recognition and an integrated business model, Demant is positioned to grow faster than the overall market. Its ability to scale operations while maintaining technological leadership and improving profitability reinforces its competitive position in the hearing healthcare industry.
Management
Søren Nielsen is the CEO of Demant. He holds a Master of Science in Industrial Management and Product Development from the Technical University of Denmark (DTU). During his studies, he used Oticon, a Demant subsidiary, as a case study in his thesis, which led to his employment with the company in 1995. Throughout his tenure at Demant, Søren Nielsen has held various key positions. In his early years, he worked with Bernafon in Switzerland, where he played a crucial role in integrating the newly acquired hearing aid manufacturer into Demant’s multi-brand structure. He later served as Quality Director and as a business unit team leader at Oticon. In 2008, he became President of Oticon and assumed overall responsibility for all of Demant’s hearing aid activities. By 2015, he was appointed Chief Operating Officer and Deputy CEO, joining the company’s Executive Board. In April 2017, after more than two decades with the company, he became President and CEO of Demant. Søren Nielsen is recognized for his deep industry knowledge, commitment to innovation, and ability to leverage technology to drive business growth. He places strong emphasis on developing company culture, investing in employees, and maintaining a customer-centric approach. His leadership has been instrumental in strengthening Demant’s competitive position, expanding its market presence, and ensuring continued innovation across its hearing healthcare businesses. With his extensive experience and proven track record, Søren Nielsen is well-positioned to lead Demant forward in an evolving and increasingly technology-driven industry.
The Numbers
The first metric to investigate is the return on invested capital (ROIC). Our criterion requires a 10-year history with all figures exceeding 10% annually. Demant has consistently delivered a ROIC above 10% over the past decade, with the exceptions of 2019, when an IT incident impacted operations, and 2020, which was affected by the COVID pandemic. Aside from these years, ROIC has remained relatively stable, with the exception of 2022, which was challenging for most companies due to macroeconomic factors. In 2024, ROIC declined slightly but remained at a solid 14%, well above the 10% requirement. Given this consistency, I do not see the recent decline as a concern. The company’s ability to maintain a strong ROIC over the long term reinforces its position as a high-quality business.
The following numbers represent the book value + dividend. In my previous format, this was referred to as the equity growth rate. It was the most important of the four growth rates I used in my analyses, which is why I will continue to use it in the future. As you are accustomed to seeing numbers in percentage form, I have decided to provide both the actual numbers and the year-over-year percentage growth. I don't have the growth rate from 2014 to 2015 as Finbox only provides data for the past ten years. Demant has managed to increase its equity in all but two years over the past decade, which is encouraging. In 2024, the company achieved its highest equity level ever. It is also worth noting that acquisitions and divestitures may impact the numbers in certain years.
Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. It is not surprising that Demant has delivered positive free cash flow every year for the past decade. While free cash flow decreased slightly in 2024, it still reached its second-highest level ever. It is particularly encouraging that free cash flow has reached a new, higher level in the past two years, which bodes well for the future. This also benefits investors, as Demant uses excess free cash flow after acquisitions for share buybacks, boosting shareholder returns. As a result of these buybacks, the number of shares outstanding has declined by 20% over the past decade, despite occasional dilution when Demant issued shares to fund acquisitions. The levered free cash flow margin also declined slightly in 2024 but remains at its second-highest level in the past decade, which is a positive sign. Meanwhile, the free cash flow yield is currently at its highest level in the past decade, suggesting that the shares are trading at an attractive valuation. However, we will revisit valuation later in the analysis.
Debt
Another important aspect to consider is debt. It is crucial to assess whether a business has a manageable level of debt that can be repaid within a three-year period, calculated by dividing total long-term debt by earnings. Upon analyzing Demant’s financials, the company currently has 4,3 years of earnings in debt. While this is higher than I would prefer, it is not alarming. The primary reason for the higher debt is acquisitions, as Demant allocated more capital to bolt-on acquisitions in 2024 than in previous years. This increase in acquisition activity was partly due to postponed deals from 2023 being completed in 2024. It is also worth noting that Demant does not typically carry this level of debt. As a result, the higher-than-three-years debt level does not deter me from investing in the company, but I would like to see management prioritize debt repayment moving forward.
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Risks
Regulatory changes pose a risk for Demant as they can impact product requirements, reimbursement policies, and distribution models, all of which directly affect the company’s operations and profitability. As a leader in hearing healthcare, Demant must comply with strict regulations to ensure that its hearing aids meet safety, quality, and performance standards. Changes in these regulations could require the company to modify its product designs, adjust manufacturing processes, or upgrade quality control systems, all of which could lead to higher costs or delays in bringing new products to market. While the current regulatory environment is relatively stable, future policy updates could introduce new compliance challenges. One of the biggest regulatory risks for Demant comes from reimbursement schemes and public tenders, which play a crucial role in making hearing aids affordable for consumers in many countries. In several markets, governments or health insurance providers subsidize part or all of the cost of hearing aids, making them more accessible to people with hearing loss. If reimbursement levels are cut, it could make hearing aids more expensive for consumers, leading to lower demand and putting pressure on pricing. Public tenders, where governments or healthcare providers negotiate bulk purchases of hearing aids, can also impact the business. If new rules change how these tenders are awarded or introduce stricter pricing conditions, Demant may face challenges in maintaining its market share in these regions.
Competition poses a significant risk for Demant as it operates in a highly specialized industry with a few dominant players and increasing pressure from both established rivals and emerging brands. The global hearing aid market is led by major competitors such as Sonova and WS Audiology, both of which have strong brands, advanced technology, and extensive distribution networks. Additionally, new entrants and aggressive players are actively pursuing large retail partnerships, making it more challenging for Demant to secure or retain key contracts. One of the biggest competitive risks is pricing pressure. If competitors undercut prices or offer more favorable deals to retailers and distributors, Demant may be forced to lower its own prices to remain competitive, potentially squeezing profit margins. Losing major contracts—similar to Sonova’s loss of its Costco deal—could be particularly damaging, as large retail partnerships play a crucial role in driving sales volume. When retailers have multiple suppliers to choose from, Demant must consistently demonstrate that its products offer the best combination of quality, technology, and value. Another key challenge is shifting distribution models. The industry has traditionally relied on audiologist-led sales channels, where hearing aids are prescribed and fitted by professionals. However, the rise of managed care programs, online sales, and over-the-counter hearing aids is changing how consumers access hearing solutions. If major competitors or new entrants establish a strong foothold in these emerging distribution channels, Demant may face increasing difficulties in reaching consumers directly, potentially weakening its market position over time.
Supply chain disruptions pose a significant risk for Demant because the company relies on receiving high-quality materials on time to manufacture and deliver its hearing aids and related products. Any delays in the supply chain can slow down production, leading to late deliveries to customers, which can have serious consequences. Unlike consumer electronics or luxury items, hearing aids are essential medical devices that help people hear and communicate. Many users depend on them daily for work, social interactions, and overall quality of life. If hearing aids or replacement parts are delayed, customers may experience prolonged hearing difficulties, which can negatively impact their well-being. Audiologists and hearing clinics also rely on timely deliveries to provide their patients with new devices and ongoing support, meaning delays could disrupt their services and lead to dissatisfied patients. Another challenge is that hearing aids require advanced technology, and many components, such as microchips and batteries, come from specialized suppliers. If even one critical part is unavailable, an entire batch of hearing aids may be delayed because production cannot be completed. This is particularly problematic for Demant, as it operates in a fast-moving industry where new models and technological improvements are constantly being introduced. If supply chain disruptions cause delays, competitors with smoother operations may capture market share, and customers may switch brands instead of waiting for their preferred product. Delays can also impact retailers and healthcare providers who stock Demant’s products. Large retailers, hearing aid clinics, and distributors expect reliable deliveries to serve their customers effectively. If Demant cannot meet demand on time, these partners may turn to competitors with more consistent supply chains, potentially weakening Demant’s market position over time.
Reasons to invest
Favorable global trends make Demant an attractive long-term investment, as the hearing aid industry is supported by structural growth drivers that are expected to sustain demand for decades. One of the most significant factors is the aging global population. As life expectancy increases, more people are experiencing age-related hearing loss. The World Health Organization (WHO) estimates that one in four people will have some degree of hearing loss by 2050, with over 400 million already experiencing moderate to severe impairment. Since hearing loss worsens over time and can significantly impact quality of life, the demand for hearing aids is expected to rise steadily. Another key driver is the growing awareness of hearing health and the benefits of treatment. In developed markets, adoption rates are improving as governments expand reimbursement programs, making hearing aids more accessible and reducing financial barriers. At the same time, the social stigma surrounding hearing aids is diminishing, as modern devices have become smaller, more discreet, and technologically advanced. These shifts encourage more people to seek treatment earlier, further expanding the market for hearing aids and hearing care services. Emerging markets present a major growth opportunity, particularly in China, where hearing aid adoption remains low. Currently, only about 3% of diagnosed cases in China result in hearing aid use, leaving enormous room for expansion as awareness improves and hearing healthcare becomes a public priority. Rising incomes and an increasing focus on healthcare accessibility in developing countries will likely drive further growth in these regions. Hearing loss also has a significant economic impact, with untreated cases linked to lower workforce participation, increased healthcare costs, and a higher risk of mental health conditions such as depression and cognitive decline. According to WHO, untreated hearing loss costs society an estimated $980 billion annually, reinforcing the need for better solutions and encouraging healthcare systems to prioritize early intervention and treatment.
Demant’s commitment to innovation and technological advancements is a key reason to consider the company as an investment. The hearing aid industry is evolving rapidly, with increasing expectations for sound quality, adaptability, and ease of use. To stay competitive, companies must continuously improve their technology, and Demant has demonstrated a strong focus on research and development to drive new product innovation. One of the most significant advancements in Demant’s portfolio is Oticon Intent, launched in 2024. This next-generation hearing aid incorporates AI and deep neural networks to enhance speech clarity, reduce noise, and adapt to different listening environments. Unlike traditional hearing aids that rely primarily on amplification and directional microphones, Oticon Intent dynamically adjusts sound focus in real time based on the user’s listening intent. It features motion sensors that detect head and body movements, allowing for a more natural and personalized hearing experience. Additionally, Demant’s AI-based signal processing ensures that users can distinguish speech while maintaining background awareness, an important factor in real-world conversations. The device is also designed for low power consumption, enabling all-day performance, which is essential for those who rely on hearing aids throughout their daily activities. Beyond Oticon Intent, Demant continues to expand its product portfolio across different price points and form factors. The company has introduced smaller, more discreet hearing aids, including custom in-ear devices that integrate AI-driven sound processing while maintaining low power consumption. These developments address the growing consumer demand for hearing aids that blend seamlessly into daily life while still offering high-performance audiology. With a strong pipeline of innovations and continuous improvements in sound processing, connectivity, and battery efficiency, Demant is well-positioned to maintain its leadership in the hearing aid industry.
Demant’s decision to sell its Communications business is a smart move that strengthens its long-term focus. By exiting this segment, the company can concentrate entirely on hearing healthcare, which has consistently been its most successful and profitable area. This shift allows Demant to use its resources more effectively, improving both its operations and financial performance. The hearing healthcare business has been a strong growth driver for Demant and by focusing on this core business, Demant is positioning itself for long-term success in a market with steady demand. On the other hand, the Communications business, which included EPOS (headsets for gaming and office use), struggled with lower profits and unpredictable market conditions. Demand for gaming headsets declined, and enterprise audio needs shifted, making it harder for Demant to compete in this area. Selling this business has already had a positive financial impact, with the Communications and bone-anchored hearing system businesses turning a profit in the last quarter of 2024. The company now expects additional financial benefits from completing this divestment. Another advantage of this move is that Demant can now focus its money and effort on what it does best—developing advanced hearing aids and diagnostic solutions. The hearing healthcare market requires ongoing investment in research and development to stay competitive. By selling its non-core business, Demant can dedicate more resources to creating innovative products that meet the growing needs of people with hearing loss. By becoming a more focused hearing healthcare company, Demant strengthens its position in an industry with stable demand and strong growth potential. This decision removes distractions, improves financial stability, and ensures that the company remains a leader in hearing healthcare for years to come.
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Valuation
Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators.
The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 13,31, which is from 2024. I have selected a projected future EPS growth rate of 7%. Management expects 6% to 8% growth moving forward. Additionally, I have selected a projected future P/E ratio of 30, which is twice the growth rate. This decision is based on Demant's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be DKK 90,61. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Demant at a price of DKK 45,30 (or lower, obviously) if we use the Margin of Safety price.
The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 4.080, and capital expenditures were 576. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 403 in our calculations. The tax provision was 824. We have 217,7 outstanding shares. Hence, the calculation will be as follows: (4.080 – 403 + 824) / 217,7 x 10 = DKK 206,75 in Ten Cap price.
The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. With Demant's Free Cash Flow Per Share at DKK 16,10 and a growth rate of 7%, if you want to recoup your investment in 8 years, the Payback Time price is DKK 176,75.
Conclusion
I believe Demant is an intriguing company with strong management. Its vertically integrated business model gives it a competitive edge, allowing for greater control over product development and distribution. Demant has consistently achieved a high return on invested capital and has significantly improved its free cash flow in recent years. However, there are risks to consider. Regulatory changes could impact product requirements and reimbursement policies, potentially increasing costs or reducing demand. Competition from established players like Sonova and WS Audiology, as well as new entrants, could put pressure on pricing and market share. Supply chain disruptions, particularly in sourcing key components like microchips and batteries, could delay production and frustrate customers, affecting brand loyalty and sales. Despite these risks, Demant is well-positioned for long-term growth. An aging population and increasing awareness of hearing health are driving greater demand for hearing aids, while improved reimbursement programs and expanding access in emerging markets create strong growth opportunities. Demant’s focus on innovation, including AI-driven hearing aids like Oticon Intent, ensures it remains competitive in an evolving market. The company’s decision to divest its Communications business further strengthens its focus on its most profitable segment, allowing for better resource allocation and financial performance. I believe Demant is a great company, and buying shares below the Ten Cap price of DKK 206 could be a good long-term investment.
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