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Love Your Pets? Buy and Hold This Growth Stock for Life, Too

By Luis Sanchez CFA - Updated Feb 19, 2021 at 1:01PM

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Idexx Labs is riding the growth trends in pet healthcare.

If you have ever wanted to invest in a company that helps keep your furry friend healthy, look no further than Idexx Labs (IDXX 1.65%). Idexx offers everything veterinarians need to test your pet for all manners of ailments. The company provides the equipment used to run diagnostic tests as well as the testing kits that go with these devices. Idexx even manages the reference labs where tests are processed. In other words, if you take your pet to the vet and run a test, there is a good chance that Idexx is behind the curtain.

The pet healthcare industry has grown terrifically over the past several years. As it turns out, that is just one of the reasons why Idexx's future is looking bright.

A dog kissing a girl's head outdoors

Image source: Getty Images.

The growing pet care market

The market for pet care has been growing for nearly 100 years since the Great Depression. More than half of all U.S. households now own a pet. The pandemic has only added to this trend, causing dog and cat adoptions to increase by 5% and 4% respectively during the three-month period when COVID-19 first hit the U.S.

Internationally, there are twice as many pets as there are in the United States. In fact, the U.S. ranks fifth for pet ownership, with Argentina, Mexico, and Brazil taking the top three pet-ownership spots. This represents a huge opportunity abroad for pet health providers based in the U.S.

As the number of pets rises around the world, Idexx Labs continues to see its addressable market for running diagnostic tests used in pet care continue to expand -- good news for the company in the long term.

Pet wellness is a growing trend

Increasingly, pets are viewed as members of the family in what is known as the "humanization of pets" trend. And of course, once pets are seen as members of the family, it only makes sense that the family will try to give their pets the best healthcare possible.

One way pets are receiving better treatment is through wellness visits. Typically, pet owners take their pets in when the pets are sick in the hopes of finding the right care. But there is a rising trend of taking pets in for regular checkups as a preventative measure to keep them healthy -- this is referred to as pet wellness. By taking pets in to see the vet on a regular basis, veterinarians can run tests, spot diseases early, and dispense the necessary treatments.

Pet wellness is a great trend, because spotting problems earlier can mitigate the chances of more expensive treatments down the road. Pets are healthier, owners are happier, and veterinarians are kept busy. Idexx Labs benefits from this trend to the extent that more pets visit their veterinarians and run diagnostics. In its fourth-quarter 2020 earnings call, Idexx noted that a 10% year-over-year increase in clinical visits related to wellness helped boost its testing volumes. The company expects wellness to continue contributing to growth in the coming years.

Veterinarians are running more tests per visit

Not only are more pets going to the clinic, but practices are running proportionally more tests each year. Driving the trend is a mix of factors. First, Idexx has introduced new tests that can be used to detect more health issues. Idexx has invested a great deal of money into research and development over the years, which has yielded new testing products for the vets to run.

Second, pet owners are increasingly adopting pet insurance policies that cover more tests, including wellness-related tests and treatments. Therefore, pet owners increasingly have the budget to pay for tests and don't need to worry as much about out-of-pocket costs at the clinic.

Idexx Labs is positioned for significant growth

Idexx Labs has been a phenomenal growth stock for years. The company is one of the prime beneficiaries of the growth in the pet care market driven by the trends highlighted above.

IDXX Chart

IDXX data by YCharts

Despite the pandemic in 2020, Idexx Labs produced total year-over-year revenue growth of 12.5% and net income growth of 36.1%. The company also provided favorable guidance for 2021. Odds are that the stock will continue to deliver for shareholders in the years to come.

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