Idexx: All creatures great and small and profitable

In a recent article we analysed how good businesses adapt to the societal changes their customers are living through – like beverage companies dealing with falling alcohol sales. 

Idexx, a holding in the Platinum International Brands Fund, is another example. Idexx is a US business that sells the lab equipment vets use to diagnose animal diseases. It’s the beneficiary of an interesting social change – the ‘humanisation’ of pets. 

Our furry friends have moved from the back yard to the back room to the couch – and now often share their owners’ beds. This “humanisation” is particularly noticeable amongst two groups. 

• Young people who delay having children and treat their pets as their children. 

• Older people who keep a pet for companionship after their children move away.

 
Both these groups will spend serious money keeping their pet happy and healthy. As anyone who’s ever loved a pet can tell you, having a sick or injured pet is distressing and owners are prepared to pay up to ensure their animal receives the best care. 

However, this humanisation trend is not why we invested in Idexx. What impressed us was how it reshaped its business to generate revenue from that trend.

Of labs and labradors

Historically, vets would send test samples to a large, centralised reference lab via courier. That involved significant logistic costs for the lab operators who had to collect samples from a dispersed network of vet clinics. It also meant worrying delays for pet owners. 

Idexx disrupted this model by miniaturising lab equipment – such as countertop machines for blood chemistry, hematology and urinalysis – so they could place them directly in vet clinics. Rather than make vets purchase these expensive machines for a large upfront payment, Idexx gets them to commit to a certain test volume over a multi-year period. 

The company makes its money by selling the consumables - test kits and reagents. Think of it as razor-and-blade or printer and ink model. It’s a model that works - Idexx earns a 40% return on capital (ROCE) through this annuity-like income stream from the consumables and service contracts.¹ 

This business model eliminates transport costs and shifts rent and technicians’ costs from Idexx to the vet. And it means the local vet can provide rapid results for anxious pet owners. 

Integrated software is a vet's best friend 

Idexx’s strength lies not just in testing hardware but in the integrated software ecosystem it’s built that further locks it into the vet’s business model. The Idexx practice management software syncs seamlessly with their diagnostic machines, creating a unified workflow. With over 50% market share, Idexx now has a vast database of diagnostic histories vets can access, even across different clinics.

Cleverly, Idexx shares its data with universities and their research data supports increased diagnostic testing for pets. Studies show that 50–70% of seemingly healthy pets have underlying conditions. 

Interestingly, there’s been a drop in vet visits since the Covid pet adoption boom with higher living costs likely part of the explanation. So Idexx is using the academic data to build the case for more routine check-ups for pets. If pet owners started to take their vets for annual testing, the addressable market for diagnostics could leap from $8 billion to $45 billion a year. 

The investment case 

Idexx has a strong market position and room for organic growth as vets do more regular check-ups and more testing. We acquired our Idexx position during the broad market selloff early this year at 30 times earnings. While not cheap, we believe this is a fair price for an outstanding business with a long runway for growth. Idexx stock is up just under 40% over the past year and 11% per year for the past five years.² 

We see Idexx as a business with significant upside. It’s riding a powerful social trend and has reshaped its business to drive maximum profitability from that trend. 

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1. Return on capital employed measures how efficiently a business uses its capital to generate profits. A company’s capital is its assets (what it owns or is owed) minus its liabilities (what it owes).
2. To 7 August 2025, Source FactSet, in USD.