Shares of IDEXX Laboratories (NASDAQ: IDXX) fell 11.7% last month, according to data provided by S&P Global Market Intelligence.
IDEXX stock rose steadily through the first half of the year, but the shares took a pause starting in the second half. The business continued to report solid growth on the top and bottom lines in its latest quarterly results, but apparently, investors wanted to see more growth for a stock that is richly valued.
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At the end of October, IDEXX reported a strong quarter. Organic (non-GAAP) revenue and adjusted earnings per share increased by 12% and 21%, respectively, on a constant currency basis. EPS of $1.24 beat analyst estimates by $0.10 per share.
Investors probably didn't like that management lowered their adjusted earnings outlook. However, management blamed the revised guidance on the negative impact of $0.18 in "charges associated with CEO transition in the fourth quarter."
Nonetheless, IDEXX appears to be performing well. In the earnings press release, CEO Jay Mazelsky said, "IDEXX delivered outstanding operating results in the third quarter, supported by continued strong growth in CAG [Companion Animal Group] Diagnostics recurring revenues."
It may take investors a while to reset expectations, but IDEXX should continue growing. Early 2020 guidance calls for revenue growth between 9% and 10.5% (over 2019). Adjusted earnings per share are expected to increase between 17% and 20% next year.
IDEXX's stock currently has a trailing price-to-earnings ratio of 51. While its shares generally trade at a high valuation, this valuation is quite steep, even by IDEXX's standards. Supporting the high valuation is management's belief that the business has a long growth runway, as it seeks to win the business of millennials, who are more willing to take their pets to the vet than previous generations.
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