While earnings ratios are a great way to track a stock's financial performance, it's much more important to consider a company's long-term investment case.
Two examples where this theory makes sense to consider are Pinterest (NYSE: PINS ) and Idexx Laboratories (NASDAQ: IDXX ) . Recently reporting earnings, these emerging companies delivered less than perfect numbers for the quarter; however, they will improve as we look back over the decades.
That being said, this is why I'm excited to add Pinterest and Idexx Labs here in February.
1. Pinterest
Whether businesses are looking to build brand awareness, drive product awareness or drive sales conversions, Pinterest's inspirational and positivity-focused social media platform is an engaging advertising medium. With nearly a third of sales coming from each of these three marketing channels (brand, consideration and conversion), the company's advertising solutions offer something for every marketer.
With more than 450 million monthly active users (MAUs), Pinterest aims to create a safer and more positive environment for brands to run marketing campaigns. While it may seem obvious, Twitter and TikTok (and their recent concerns) highlight the dangers brands face when advertising on more controversial (and often negativity-driven) platforms.
Recently reporting Q4 2022 earnings, Pinterest saw slow revenue growth, with constant currency sales up 6%. Worse, GAAP net income fell from $175 million in the fourth quarter of 2021 to $17 million in the fourth quarter of 2022 as costs continue to rise.
At first glance, these results are extremely disappointing. Add this to the context of the tough advertising environment right now, however, and it could be argued that Pinterest is resilient compared to its peers. Consider the table below.
© Y-Charts. Year = Income PIN Year (Increase Year)Compared to giants Meta Platform and Alphabet and even Snap , Pinterest's relentless growth has been relatively impressive, all things considered. In addition, two large user groups have seen the company grow in size from the outside, stressing that the best is yet to come.
First, Pinterest's mobile MAUs grew 14% year-over-year, accounting for 80% of total impressions and revenue from mobile users. Second, younger generation MAUs saw double-digit growth in the fourth quarter and accounted for nearly 50% of videos pinned on the platform, Pinterest's expanding new space.
Perhaps inspired by the growing engagement with video content among its Z users, the company saw its commercial ads grow by 50% year over year. As Pinterest buys these shopping ads and video content through its new user base, it's clear that its long-term ambitions in inspiration-focused marketing look as strong as ever.
With a goal of cutting costs by more than 10% by 2023, Pinterest looks set to return to its days of double-digit net income margins. Owning the stock at a price-to-sales ratio of 6 today, I'll happily put it on Pinterest in February and let its long-term outlook continue.
2. Idex Labs
While visits to US veterinary clinics fell 3% in the fourth quarter of 2022, veterinary diagnostics specialist Idex Laboratories reported a 7% increase in sales (minus the impact of foreign exchange), demonstrating the resilience of your operations. Even better, constant currency earnings per share (EPS) rose 14% year over year, helping to extend the stock's impressive run in recent months.
Adding to investor enthusiasm, management is guiding for organic revenue growth of 7% to 10% in 2023, with EPS expected to grow approximately 19% to 26%. The 13% increase in Idexx's installed base in Q4 2022 reinforces this promising direction.
Operating through a knife and blade model, the company sells a variety of instruments to its veterinary customers. Whether it's blood and urine chemistry, hematology, or rapid tests (think Lyme disease or heartworm), Idexx installs your new device and then provides the necessary supplies.
Due to this operating model, approximately 90% of the sales of the company's main segment, the animal group, are repeat. These consistent sales provide Idexx with consistent sales and profitability, as demonstrated by the company's high return on invested capital (ROIC).
Profit Margin © YCharts IDXXROIC measures a stock's return on its debt and equity, a mark above 20% is usually considered exceptional. Historically, companies with high ROICs tend to outperform their peers over the long term, generating large returns from wide margins. With Idexx's ROIC in the top 10% of its S&P 500 peers, it's no surprise to learn that the company has grown nearly 1,000% over the past decade.
With customer retention of 97% or higher on each of its systems, Idexx will continue to deliver these highly profitable repeat sales to its tool base of more than 120,000 installations worldwide.
Trading at 63 times earnings, Idexx may spook value investors. However, management's strong guidance for 2023, combined with the company's profitability and recurring sales, make Idexx a prime candidate for a mid-dollar buy.
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Susan Frey, CEO of Alphabet, is a member of The Motley Fool's board of directors. Randy Zuckerberg, former director of market development and Facebook spokesperson and sister of Mark Zuckerberg, CEO of the Meta platform, is on the board of The Motley Fool. Josh Kohn-Lindqvist holds positions in Alphabet, Idexx Laboratories, Meta Platforms and Pinterest. The Motley Fool lists and recommends Alphabet, Meta Platforms, and Pinterest. The Motley Fool recommends Idexx Laboratories. The Motley Fool has a disclosure policy.