Here's Why IDEXX Laboratories (NASDAQ:IDXX) Has Caught The Eye Of Investors

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

In contrast to all that, many investors prefer to focus on companies like IDEXX Laboratories (NASDAQ:IDXX), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide IDEXX Laboratories with the means to add long-term value to shareholders.

Check out our latest analysis for IDEXX Laboratories

How Fast Is IDEXX Laboratories Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That makes EPS growth an attractive quality for any company. Impressively, IDEXX Laboratories has grown EPS by 19% per year, compound, in the last three years. So it's not surprising to see the company trades on a very high multiple of (past) earnings.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. The good news is that IDEXX Laboratories is growing revenues, and EBIT margins improved by 4.0 percentage points to 30%, over the last year. Ticking those two boxes is a good sign of growth, in our book.

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for IDEXX Laboratories' future profits.

Are IDEXX Laboratories Insiders Aligned With All Shareholders?

Owing to the size of IDEXX Laboratories, we wouldn't expect insiders to hold a significant proportion of the company. But we are reassured by the fact they have invested in the company. We note that their impressive stake in the company is worth US$427m. While that is a lot of skin in the game, we note this holding only totals to 1.0% of the business, which is a result of the company being so large. This still shows shareholders there is a degree of alignment between management and themselves.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. For companies with market capitalisations over US$8.0b, like IDEXX Laboratories, the median CEO pay is around US$12m.

IDEXX Laboratories' CEO took home a total compensation package worth US$9.8m in the year leading up to December 2022. That is actually below the median for CEO's of similarly sized companies. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of a culture of integrity, in a broader sense.

Does IDEXX Laboratories Deserve A Spot On Your Watchlist?

For growth investors, IDEXX Laboratories' raw rate of earnings growth is a beacon in the night. If that's not enough, consider also that the CEO pay is quite reasonable, and insiders are well-invested alongside other shareholders. The overarching message here is that IDEXX Laboratories has underlying strengths that make it worth a look at. You still need to take note of risks, for example - IDEXX Laboratories has 1 warning sign we think you should be aware of.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of companies which have demonstrated growth backed by recent insider purchases.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.