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Still Waiting For A Better Entry Point On IDEX

Apr. 08, 2021 4:23 PM ETIDEX Corporation (IEX)
Stephen Simpson profile picture
Stephen Simpson


  • Execution is never the issue with IDEX, and most of the company's end-markets will be growing in 2021, but the valuation reflects the quality and then some.
  • Management has significant M&A capacity, and M&A has long been core to the business plan, but finding deals that meet the strategic and rate of return hurdles could be challenging.
  • High single-digit FCF growth and a high-teens ROIC don't support particularly attractive fair values; the relative P/E is at the high end of its historical range.

I don’t expect the shares of quality companies to go on sale that often, and I do regard IDEX (NYSE:IEX) as a “best of breed” player in fluid management, with an asset-light model focused on multiple smaller businesses that are leaders in their markets by virtue of differentiated product design and capabilities. Likewise, the company’s 20%-plus operating margins and long track record of healthy ROICs speak for themselves.

I have no issues with the quality or growth potential of IDEX, but I am a firm believer that overpaying for even the best companies is a ticket to long-term underperformance. Since my last update, these shares have continued to rise (up another 18%), but lagged the broader industrial group by around 10%, as well peers like IMI plc (OTCPK:IMIAY) (OTCPK:IMIAF), and the valuation is still no bargain.

High single-digit FCF growth isn’t enough to support a particularly attractive return, and I’d likewise note that the P/E has crept up to a 50% premium over the S&P 500 (the high end of the historical range), while the P/E of the S&P 500 itself is close to 50% above its long-term average. None of that precludes further gains for IDEX, but I do worry about the inevitable normalization of valuations across the industrial sector (and the market as a whole).

Most Markets Are, Or Will Be Turning, Green This Year

Looking at IDEX’s primary end-market exposures, there’s a lot to like in the outlook. What’s more, IDEX is an exceptionally well-diversified company, reducing idiosyncratic risks to the busines.

The only market of any significance that I’m concerned about for IDEX in 2021 is oil/gas, where I expect weak demand and spending throughout 2021 and likely into 2022. Neither Dover (DOV) nor Vontier (VNT) have sounded all that bullish

This article was written by

Stephen Simpson profile picture
Stephen Simpson is a freelance financial writer and investor. Spent close to 15 years on the Street (sell-side, buy-side, equities, bonds); now a semi-retired raccoon rancher. That last part isn't entirely true. Probably.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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