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Is It Too Late to Buy Idexx Laboratories?

By Steve Ditto – Updated Aug 3, 2021 at 2:13PM

Key Points

  • Pet healthcare is a large and growing global market.
  • Veterinarians are rapidly adopting in-office diagnostic testing tools.
  • Increased testing is the foundation of Idexx's attractive recurring-revenue model.

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This pet healthcare company is giving vets what they need, and its stock has been doing the same for investors.

People love their pets, and they're spending more on them than ever. According to Global Market Insights, the pet industry is an estimated $232 billion global market opportunity -- and it's growing by more than 6% per year.

The pandemic may have accelerated these trends, but they show no sign of abating. And Idexx Laboratories (IDXX -0.88%) -- a global leader in veterinary diagnostics, services, and practice software -- is well-positioned to take advantage.

Idexx's stock price is up 36% year to date and 81% over the past 12 months on the strength of its most recent two quarterly earnings reports, which may lead potential new investors to ask, "Is it too late to buy Idexx?"

two vets conducting blood test on puppy.

Image source: Getty Images.

Strong guidance from management 

Idexx seems to be firing on all cylinders. Revenue was up 30% in Q2 2021, operating profit increased 30%, and earnings per share increased 33% compared to the previous year. As a result, management raised its full-year revenue outlook by $55 million at the midpoint, to a range of $3.170 billion to $3.205 billion. This update reflects favorable impacts from foreign exchange-rate changes as well as benefits from recent acquisitions.

"Veterinary customers are extremely busy due to high visit volumes," CEO Jonathan J. Mazelsky said during the Q2 earnings call. "And they're investing in Idexx instruments, diagnostics, and tools to support practice growth, patient care, and staff productivity."

Although Idexx's recent results and guidance look good, investors will want to keep an eye on several key metrics.

Continued revenue growth in diagnostic business

Producing almost $746 million in Q2 revenue, Idexx's Companion Animal Group (CAG) accounts for 90% of its top line. Livestock, poultry, dairy, and water segments round out its offerings. CAG is also the fastest-growing area of the business, with 16% to 17.5% growth projected for the remainder of the year. Even better, Idexx's diagnostic revenue is largely recurring, providing an exceptional long-term financial foundation for the company.

Vets are moving toward providing more diagnostic services in-office, particularly as the equipment required has become smaller, faster, and more affordable. Diagnostics are becoming a part of most pet visits, and Idexx management sees these trends expanding the diagnostic market over the next 25 years by a factor of 8, to $31 billion. Investors should watch for continued growth in the percentage of clinical visits that include blood work, and growing placements of chemistry, hematology, and urine sediment analysis machines

Continued global expansion

In Q2, the U.S. provided 62% of the company's revenue, while the Europe/Middle East/Africa region was the second-largest contributor at 21%. In 2020, Idexx invested $60 million in a new German reference lab facility, which should become a strong source of growth supporting customers across Europe.

Idexx has customers in more than 175 countries and is planning to invest in additional international sales and support capabilities. The business has a long history of seeing increased local commercial presence translate into faster adoption of new innovations and revenue growth.

Investors should watch for continued investments in international sales and support, the development of more international reference labs, and growth in the placement of in-house diagnostic machines.  

Growth in software and services

In June, Idexx acquired ezyVet, a veterinary practice information management system. By providing the software to run veterinary offices more efficiently, Idexx is creating more customer value and stickiness. Idexx has also started offering telemedicine services in radiology, cardiology, and other specialties to help its customers offer more services and deliver better care. In Q2, veterinary software, services, and diagnostic imaging system revenues grew by 33%.

Investors should look for increases in the number of practices using these services and positive trends in customer satisfaction and retention. 

A real tail-wagger

After the latest run-up in its share price, Idexx has a market cap of $57.9 billion, a price-to-earnings ratio of 87, and a price-to-sales ratio of 16. Clearly, there's a lot of anticipated growth already reflected in that stock price. But that doesn't mean it's too late for new investors to buy in.

In all likelihood, the global pet care market will continue to grow at about 6% per year, and Idexx has a multi-decade opportunity to grow its highly profitable recurring revenue sources almost 3 times faster, according to management's current projections.

A dog may be a man's best friend, but Idexx could be a pretty good friend to your portfolio, too. Patient healthcare investors who favor a buy-and-hold approach should consider getting on board now.

Steve Ditto owns shares of Idexx Laboratories. The Motley Fool recommends Idexx Laboratories. The Motley Fool has a disclosure policy.

Stocks Mentioned

Idexx Laboratories Stock Quote
Idexx Laboratories
IDXX
$435.30 (-0.88%) $-3.87

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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