A widening ditch and a massive trail ahead
“The dog is man’s best friend.” This old adage has seen its business implications increase these days. According to several studies, 98% of pet owners consider their pets to be full members of the family, and more than half admit to enjoying their pet’s company even more than that of their best friends. humans.
This feeling of love for pets is often reflected on bank statements. The American Pet Products Association (referred to as “APPA”) estimates the US pet economy to be nearly $ 75 billion. In addition, the field has continued to grow thanks to the favorable demographic trend. Millennials continue to be the largest group of customer pet owners, and this age group is well known for prioritizing quality over quantity.
To capitalize on the market’s ever-growing desire to improve the well-being of their pets, we believe that no company is better positioned than IDEXX Laboratories (NASDAQ: IDXX). The Maine-based company is the world’s leading developer of diagnostic products and services primarily for pet veterinarians. In fiscal 2019, the Companion Animals group’s business segment accounted for approximately 88% of total sales and increased 9.5% from the previous fiscal year. Geographically, the US home market contributed 62% of revenue, followed by the EMEA region (21%).
IDEXX uses a razor-and-blade business model, with its instruments generating low-cost, repeatable and predictable cash flow through single-use consumables. The recurring part now represents nearly 90% (compared to 80% ten years ago) of the company’s total turnover and is high margin and low risk. It should be mentioned that the pet health care industry has a unique advantage over humans, as vets generally do not have to deal with insurance companies. As a result, providers can have higher pricing power without having to negotiate with payers.
With a dominant position sharing nearly half of the US companion animal diagnostics market, IDEXX is trying to drive an economic divide through its large installation base and extensive ecosystem. Management stated the following in its annual filing with the SEC:
“We believe that the breadth of our comprehensive diagnostic solution, including new products and services developed and made available only by IDEXX, as well as the seamless software integration of our offering provide a unique competitive advantage by giving veterinarians the tools and services to provide advanced veterinary care services. “
The management also acknowledged: “Because our businesses are very attractive, they are also very competitive. The main competitors are Antech Diagnostics (a unit of Mars Petcare), Zoetis (NYSE: ZTS) and Heska (NASDAQ: HSKA). According to GuruFocus, IDEXX appears to have competed favorably in terms of annual return on assets compared to Zoetis and Heska over the past decade.
Going forward, the company is expected to focus on organic growth through product innovation, current market penetration and regional expansion. According to management estimates, the global pet diagnostics market totals $ 33 billion, but only 11% of that amount has been penetrated, opening up a huge path for IDEXX and its peers.
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This article first appeared on GuruFocus.