While earnings reports are a great way to monitor a stock's financial progress, checking in on a company's longer-term investment thesis is far more critical.
Two examples where it would be wise to keep this theory in mind are Pinterest (PINS -0.22%) and Idexx Laboratories (IDXX 1.00%). Recently reporting earnings, these promising enterprises delivered less-than-perfect quarterly figures -- yet, they remain positioned to thrive when we look decades out.
With that said, here's why I'm excited to add to Pinterest and Idexx Labs here in February.
1. Pinterest
Whether companies want to build brand awareness, generate product consideration, or drive sales conversion, Pinterest's inspiration and positivity-focused social media platform is an attractive advertising medium. With roughly one-third of its sales coming from each of these three marketing funnel areas -- brands, consideration, and conversion -- the company's advertising solutions offer something for any marketer.
Boasting over 450 million monthly active users (MAUs), Pinterest aims to create a safer and more positive environment where brands can run marketing campaigns. Although this may seem obvious, Twitter and TikTok (and their assortment of recent concerns) highlight the risks that brands face when advertising on more controversial (and often negativity-driven) platforms.
Recently reporting fourth-quarter earnings for 2022, Pinterest continued to see its revenue growth decelerate, posting a constant-currency sales increase of 6%. Worse yet, generally accepted accounting principles (GAAP) net income declined from $175 million in Q4 2021 to $17 million in Q4 2022 as expenses continued to balloon.
At first glance, these results are highly disappointing. However, if we add the context of a brutal advertising environment at the moment, one could argue that Pinterest was resilient compared to its peers. Consider the following chart.
PINS Revenue (Quarterly YoY Growth) data by YCharts. YoY = year over year.
When compared to juggernauts Meta Platforms and Alphabet, and even its younger peer Snap, Pinterest's underwhelming growth was relatively impressive -- all things considered. Furthermore, two key groups of users saw outsized growth for the company, highlighting that the best may still be on its way.
First, Pinterest's mobile MAUs grew by 14% year over year, which is crucial as mobile users account for 80% of total impressions and revenue. Second, younger Gen Z MAUs recorded double-digit growth in Q4 and accounted for roughly 50% of the pinned videos on the platform -- a recent expansion area for Pinterest.
Perhaps spurred by its Gen Z users' increased video content engagement, the company saw its shoppable ads grow by 50% compared to the previous year. With Pinterest building out these shoppable ads and video content through its younger user base, it is clear that its longer-term ambitions in inspiration-focused marketing look more robust than ever.
With management eyeing a 10%+ decline in expenses for 2023, Pinterest looks set to return to its days of double-digit net income margins. Owning the shares today at a price-to-sales ratio of 6, I'll happily add to Pinterest in February and continue letting its long-term vision play out.
2. Idexx Laboratories
Although U.S. veterinary clinic visits dropped 3% in the fourth quarter of 2022, vet diagnostics expert Idexx Laboratories reported 7% sales growth (minus foreign exchange impacts), demonstrating the resilience of its operations. Better yet, constant-currency earnings per share (EPS) grew by 14% year over year, helping to extend the stock's impressive rally over the last few months.
Adding further excitement for investors, management guided for organic revenue growth between 7% and 10% in 2023, with EPS expected to rise around 19% to 26%. Powering this promising guidance is Idexx's 13% growth in its installed instrument base in Q4 2022.
Operating through a razor-and-blades model, the company sells various instruments to its veterinary customers. Whether blood and urine chemistry, hematology, or rapid assays (think Lyme disease or heartworm), Idexx places new devices and then provides the necessary consumables needed afterward.
Thanks to this operating model, roughly 90% of the sales in the company's core segment, the companion animal group, are recurring. These sticky sales provide Idexx with steady sales and profitability, demonstrated by the company's top-tier return on invested capital (ROIC).
IDXX Profit Margin data by YCharts.
ROIC measures a stock's profitability compared to its debt and equity, with a mark above 20% generally deemed exceptional. Historically speaking, businesses with high ROICs tend to outperform their peers over the long run, generating outsized profitability from wide moats. With Idexx ranking in the top 10% of ROICs among its S&P 500 index peers, it may come as no surprise to learn that the company is up nearly 1,000% over the past decade.
Thanks to its customer retention remaining at or above 97% in each of its modalities, look for these highly profitable and recurring sales to continue as Idexx supplies its instrument base of over 120,000 installations worldwide.
Trading at 63 times earnings, Idexx may scare most value investors away. However, management's strong guidance for 2023, paired with the company's profitability and recurring sales, make Idexx a perfect candidate for dollar-cost-averaging purchases far into the future.
