Shares of IDEXX Laboratories (IDXX) jumped 6.8 % Friday, bringing their 52 week performance to -19.8%. The stock seems to be overvalued in terms of traditional metrics, but in this day in age, we believe that a complete stock analysis should also take into account the company's poor growth indicators and mixed market sentiment.
IDEXX Laboratories, Inc. develops, manufactures, and distributes products and services primarily for the companion animal veterinary, livestock and poultry, dairy, and water testing markets worldwide. The large-cap Healthcare company is based in Westbrook, United States and has 10,000 full time employees.
IDXX Has a Higher P/E Ratio Than the Sector Average
Compared to the Healthcare sector's average of 13.21, IDEXX Laboratories has a trailing twelve month price to earnings (P/E) ratio of 57.6 and an expected P/E ratio of 47.6. The P/E ratios are calculated by dividing the company's share price by its trailing 12 month of $7.78 or forward earnings per share of $9.4.
Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since IDEXX Laboratories's P/E ratio is higher than its sector average of 13.21, we can deduce that the market is overvaluing the company's earnings.
IDXX Has an Alarming P/B Ratio
The price to book (P/B) ratio of a company is a comparison of the company's market capitalization versus its net asset, or book value. A ratio lower than 1 tells you that the equity market is undervaluing the book value of the company's assets, and ratios higher than 1 tell you that the equity markets are overvaluing the company in terms of its assets.
Of course, a company is worth much more than its assets alone, so the focus on P/B ratio is mainly to enable investors to single out undervalued securities that offer a margin of safety. Since IDEXX Laboratories's P/B ratio of 78.1 is higher than its sector average of 4.07, such a margin of safety does not exist for the stock.
IDXX Is Generating Cash
IDEXX Laboratories has decent free cash flows. This represents the actual cash that the company is generating from its sales revenues, minus its re-investments in the business (capital expenditures). The company's operating cash flows have an average growth rate of 28.9%, compared to -9.8% for capital expenditures. From the table below we can also see that the free cash flows has an average growth rate of 47.7% and a coefficient of variability of 34.6%:
| Date Reported | Cash Flow from Operations ($ MM) | Capital expenditures ($ MM) | Free Cash Flow ($ MM) | YoY Growth (%) |
|---|---|---|---|---|
| 2021-12-31 | 756 | -120 | 636 | 17.74 |
| 2020-12-31 | 648 | -108 | 540 | 77.73 |
| 2019-12-31 | 459 | -155 | 304 | n/a |
IDEXX Laboratories's Margins Are Strong
If you buy a stock for the long run, you want the underlying business model to be profitable. Gross margins tell you how much profit the company generates compared to the cost of revenue, which is the cost directly related to providing IDEXX Laboratories's goods and services. Operating margins, on the other hand, tell you how much of these profits the company keeps after you take overhead into account.
IDEXX Laboratories's Gross Margins
| Date Reported | Revenue ($ MM) | Cost of Revenue ($ MM) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2021-12-31 | 3,215 | 1,326 | 58.76 | 1.24 |
| 2020-12-31 | 2,707 | 1,136 | 58.04 | 2.31 |
| 2019-12-31 | 2,407 | 1,041 | 56.73 | n/a |
IDEXX Laboratories's Operating Margins
| Date Reported | Total Revenue ($ MM) | Operating Expenses ($ MM) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2021-12-31 | 3,215 | 957 | 28.99 | 12.98 |
| 2020-12-31 | 2,707 | 877 | 25.66 | 11.71 |
| 2019-12-31 | 2,407 | 813 | 22.97 | n/a |
IDEXX Laboratories's cost of revenue is growing at a rate of 12.9% in contrast to 8.5% for operating expenses. Sales revenues, on the other hand, have experienced a 15.6% growth rate. As a result, the average gross margins growth is 1.8 and the average operating margins growth rate is 12.3, with coefficients of variability of 1.8% and 11.7% respectively.
We See Mixed Market Signals Regarding IDXX
IDEXX Laboratories has an average rating of buy and target prices ranging from $582 to $415. At its current price of $447.77, the company is trading -6.84% away from its target price of $480.63. 3.0% of the company's shares are linked to short positions, and 93.2% of the shares are owned by institutional investors.
| Holder | Shares | Date Reported | Percentage | Value |
|---|---|---|---|---|
| Blackrock Inc. | 8,792,300 | 2022-09-29 | 11% | $3,936,928,074 |
| Vanguard Group, Inc. (The) | 8,051,510 | 2022-09-29 | 10% | $3,605,224,544 |
| State Street Corporation | 3,784,353 | 2022-09-29 | 5% | $1,694,519,701 |
| Fundsmith LLP | 3,620,777 | 2022-09-29 | 4% | $1,621,275,277 |
| AllianceBernstein, L.P. | 2,906,690 | 2022-09-29 | 4% | $1,301,528,549 |
| BAMCO Inc. | 2,387,395 | 2022-09-29 | 3% | $1,069,003,832 |
| Geode Capital Management, LLC | 1,891,351 | 2022-09-29 | 2% | $846,890,216 |
| FMR, LLC | 1,603,524 | 2022-09-29 | 2% | $718,009,923 |
| American Century Companies, Inc. | 1,528,959 | 2022-09-29 | 2% | $684,621,954 |
| Blair (William) & Company, L.L.C. | 1,224,868 | 2022-09-29 | 1% | $548,459,130 |
