Stock Analysis

With EPS Growth And More, IDEXX Laboratories (NASDAQ:IDXX) Is Interesting

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NasdaqGS:IDXX
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Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

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 Quickly Is IDEXX Laboratories Increasing Earnings Per Share?

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). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. As a tree reaches steadily for the sky, IDEXX Laboratories's EPS has grown 34% each year, compound, over three years. This has no doubt fuelled the optimism that sees the stock trading on a high multiple of earnings.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. IDEXX Laboratories shareholders can take confidence from the fact that EBIT margins are up from 25% to 28%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

earnings-and-revenue-history
NasdaqGS:IDXX Earnings and Revenue History October 4th 2021

Fortunately, we've got access to analyst forecasts of IDEXX Laboratories's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are IDEXX Laboratories Insiders Aligned With All Shareholders?

Since IDEXX Laboratories has a market capitalization of US$53b, we wouldn't expect insiders to hold a large percentage of shares. But we are reassured by the fact they have invested in the company. Notably, they have an enormous stake in the company, worth US$519m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!

It means a lot to see insiders invested in the business, but I find myself wondering if remuneration policies are shareholder friendly. A brief analysis of the CEO compensation suggests they are. For companies with market capitalizations over US$8.0b, like IDEXX Laboratories, the median CEO pay is around US$11m.

The IDEXX Laboratories CEO received US$7.0m in compensation for the year ending . That seems pretty reasonable, especially given its below the median for similar sized companies. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.

Should You Add IDEXX Laboratories To Your Watchlist?

For growth investors like me, IDEXX Laboratories's raw rate of earnings growth is a beacon in the night. If you need more convincing beyond that EPS growth rate, don't forget about the reasonable remuneration and the high insider ownership. This may only be a fast rundown, but the takeaway for me is that IDEXX Laboratories is worth keeping an eye on. Before you take the next step you should know about the 2 warning signs for IDEXX Laboratories that we have uncovered.

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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