Market Leader In Veterinary Services At A Rare Discount
I had never heard of the following company until last week.
I stumbled across it while writing the last article on all-time highs.
During my research, IDEXX Laboratories (ticker: IDXX) popped up.
In particular, its incredible 25% profit margin jumped out at me.
IDEXX manufactures and sells pet and livestock diagnostic tests and equipment, though most of its revenue comes from pets.
Specifically, IDEXX’s diagnostic tests include blood work, urinalysis, and antibody testing.
I don’t own any pets, despite my children’s pleas, so it makes sense I wouldn’t have heard of IDEXX.
But the company is amazing.
Over the past decade, IDEXX’s revenue has grown by 12% each year on average.
And earnings over the same period have grown by more than 20% each year.
Why is IDEXX so successful?
First, IDEXX is the top dog in its industry.
Almost 50% of the animal diagnostic market is controlled by IDEXX, which gives the company power over its smaller competitors.
Second, IDEXX management is running the company beautifully.
Its 25% profit margin, which was mentioned earlier, is fantastic.
But it’s also an all-time high for the company.
IDEXX’s return on assets (ROA) of 33.7% is leading its industry and is also at an all-time high.
Third, and most importantly, IDEXX’s business model is really clever.
IDEXX sells diagnostic hardware to vet clinics at a major discount.
The vet clinics buy up the hardware to save money, but to do so, they must enter long-term contracts with IDEXX to purchase other products, like diagnostic tests.
IDEXX’s hardware provides the results of the diagnostic tests, and the hardware doesn’t work with third-party tests.
So, the vet clinics must buy the diagnostic tests from IDEXX.
Last quarter, over 80% of IDEXX’s revenue came from these diagnostic tests sold through long-term contracts.
However, IDEXX’s stock price is down almost 30% since it peaked last November.
What happened?
Investors are very worried the demand for pet diagnostic tests will decline if people continue to skip their vet visits.
However, IDEXX management is still optimistic about the future.
A few weeks ago, the company raised its revenue projections by $20 million for the rest of 2026.
Even with fewer clinic visits, pet owners are opting for broader diagnostic coverage per appointment.
And with IDEXX’s price drop, now might be the perfect time to buy some shares.
IDEXX’s price-to-earnings (P/E) ratio is 38x, which is near a 10-year low for the stock.
A P/E ratio of 38x seems high, but remember IDEXX’s amazing historical growth.
I’m willing to pay more for a stock with excellent growth, especially if it’s a market leader like IDEXX.
The stock market has dipped a bit since reaching all-time highs a few weeks ago.
What stocks are you looking to buy or sell?
Coach Parker
Category: Stocks
