Stock Analysis

Here's Why We Think IDEXX Laboratories (NASDAQ:IDXX) Is Well Worth Watching

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NasdaqGS:IDXX
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Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But as Warren Buffett has mused, 'If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.' When they buy such story stocks, investors are all too often the patsy.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like IDEXX Laboratories (NASDAQ:IDXX). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

Check out our latest analysis for IDEXX Laboratories

How Fast Is IDEXX Laboratories Growing?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. Impressively, IDEXX Laboratories has grown EPS by 31% per year, compound, in the last three years. As a result, we can understand why the stock trades on a high multiple of trailing twelve month earnings.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). The good news is that IDEXX Laboratories is growing revenues, and EBIT margins improved by 2.1 percentage points to 26%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

earnings-and-revenue-history
NasdaqGS:IDXX Earnings and Revenue History February 23rd 2021

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of IDEXX Laboratories's forecast profits?

Are IDEXX Laboratories Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$46b company like IDEXX Laboratories. But we are reassured by the fact they have invested in the company. Notably, they have an enormous stake in the company, worth US$466m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, I'd say they are indeed. I discovered that the median total compensation for the CEOs of companies like IDEXX Laboratories, with market caps over US$8.0b, is about US$10m.

IDEXX Laboratories offered total compensation worth US$7.4m to its CEO in the year to . That seems pretty reasonable, especially given its below the median for similar sized companies. While the level of CEO compensation isn't a huge factor in my view of the company, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of good governance, more generally.

Is IDEXX Laboratories Worth Keeping An Eye On?

For growth investors like me, IDEXX Laboratories's 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. This may only be a fast rundown, but the takeaway for me is that IDEXX Laboratories is worth keeping an eye on. However, before you get too excited we've discovered 2 warning signs for IDEXX Laboratories that you should be aware of.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

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

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