Smith & Nephew plc is a specialist orthopedic device and product manufacturer based in the UK. The firm is listed on the London Stock Exchange.
The orthopedic sector has grown from humble beginnings as a minor sub-category of the medical manufacturing sector to become the largest single market in the industry, valued at almost £50bn, by the end of 2010. Smith & Nephew have capitalised on this explosive trend, growing to become a firm fixture of the FTSE 100 Index; its products are sold in over 90 countries as of 2013. Business is evidently booming for orthopedic devices in general, and Smith & Nephew in particular. Many investors will undoubtedly be lustily eyeing Smith & Nephew shares as a result. However, is this covetousness justifiable?
As with many aspects of the wider medical industry, one of the biggest challenges facing orthopedics is a need to innovate. The sector is large, and as result companies in the sphere need a steady flow of unique products and selling points with which to contend with their competitors. The pronounced necessity for perpetual improvement and modernisation means that orthopedic product manufacturers must invest significant amounts of their annual revenues in researching and developing new solutions – and the need to have a constant flow of new products mean that these processes cannot be protracted. A firm may create a perfectly viable product, but take so long bringing it to market that the device is superseded or eclipsed by another firm’s groundbreaking solutions. These pressures combine to create a commercial environment in which the price of failure is high in both commercial and literal, fiscal terms – and a string of disappointments could leave an orthopedic device manufacturer so far behind they must bow out of the market entirely, or be absorbed into a larger conglomerate. As of 2014, Smith & Nephew has proven resilient, providing a dependable pipeline of new products that both improve upon previous inventions or offer entirely new remedies – and hoovering up many of the firms that have fallen behind in the sector ‘race’.
Many analysts believe that the orthopedic market will further develop over the course of the 21st century. Technological innovation powering new product lines, and growth in demand for orthopedic solutions in sizeable emerging markets, could mean major growth and major profits in the decades ahead. Some traders may wish to get involved ‘at the ground floor’, so to speak – snap up some bargains at a low cost, and wait for values to climb and dividends to accumulate. Others may simply not have the patience. Both should bear in mind that the success of the orthopedic sector is furthermore not written in stone – the orthopedic sector faces significant challenges in the future, and competition within the field will undoubtedly be fierce. Still, many would argue that Smith & Nephew is not only a good starting point, but also one of the better ways of unlocking returns, both in the short and long-term.
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Kit Klarenberg is a freelance journalist and communications professional, specialising in finance. Connect with him on LinkedIn, or Twitter.