Idexx Labs (IDXX) is one of the top stocks most investors aren’t aware of, and it’s really because they aren’t aware of the company. Idexx makes the testing and diagnostics equipment that veterinarians use to treat small animals. This is a nice business, as Idexx sells both the equipment as well as the tests and other things that the equipment uses. A recurring revenue stream, like the razor and razor blade model.
In 2016 Q1 IDXX expects to launch SediVue, the first ever automated urinalysis instrument for the vet market. The device provides a digital image has a turnaround time of just 3 minutes. Since Idexx is first to market with this device, it will no doubt come with a premium price, which will boost future profitability.
Idexx gets 83% of its revenue from pet healthcare providers. 9% of sales are derived from what I like to refer to as the farm animal division (livestock, poultry, dairy) and 8% is from water quality products.
Ten Year Chart
IDXX stock has been a good one. A very good one. Ten years ago it was $16 and this qtr when these charts were updated (on 8/21) it was $76, giving investors a total return of 375%. Since then the stock’s dropped just a tad to $73 a share. The company doesn’t pay a dividend.
What I love about this stock is profits have grown each-and-every year during the past decade. Even the recession of 2009 didn’t stop it. Of course other investors like this business model too, and have given the stock a premium P/E.
Profit History
So if profits are growing each-and-every year, why haven’t I bought the stock? Well the P/E is always high, usually in the upper 20s. That’s a lot for a company that’s grown profits 14% a year the past decade. Management just disclosed it sees long-term EPS growth of 15% to 20% per year. That’s accelerating growth. Outstanding. Would be great to pick up these shares at 27x earnings. If we can.
Sharek’s Take
Idexx Labs is a fantastic company. It develops the machines that veterinarians need to cure pets, and also the supplies needed to do animal testing. I did used to own this stock, in 2003 (bought at $10) and sold it because the P/E was in the high 20s and profit growth was in the teens. I obviously should have held. The truth is IDXX always has a high P/E because profits have grown every year since 1997 and investors have to pay up for this kind of quality (Value Line gives IDXX its highest safety rating of 1).
Still, I think this stock is one that’s overvalued right now. The P/E’s around 35, double the 15% to 20% profit growth management expects long-term, and also above the normalized range of 26 to 29. Also Idexx is in a slow profit growth period due to foreign exchange rates. Estimates show flat profit growth coming the next 2 qtrs and only 6% growth this year. In the end this is yet another stock that sits on my radar, as I wait for a better price to get in at. 27 to 29 times profits seems right, and that equates to $57 to $61 a share.
View the One Year Chart here. View the Earnings Table here.
