Robust Valuation Leaves Neogen Little Room For Error After Mixed Results

 

Neogen (NEOG) has never traded in line with normal valuation metrics, and it may well never do so – or at least not over a reasonable investment horizon. The reality is that there’s scarcity value in the growth markets of food safety and animal safety, and investors have long been willing to pay up for exposure to these markets (you can see pretty robust multiples at others like IDEXX (IDXX) and Zoetis (ZTS) too). Still, I do believe that valuation matters, and these shares have lagged both the S&P and some of these food and animal safety peers this year (and since my last update).

Were I the sole owner of Neogen, I’d probably have few real concerns now, though the move towards larger M&A does carry some risk, and there’s a “predictable unpredictability” to demand-drivers like pathogen outbreaks (like aflatoxin outbreaks or the recent ASF outbreak). As a publicly-traded company, though, it’s a hard valuation call to make. About the best I can do is argue that, relative to the norms of the sector, Neogen’s valuation isn’t out of line, but this just doesn’t work for me as a GARP-type of investment candidate.

 

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Robust Valuation Leaves Neogen Little Room For Error After Mixed Results