IDEX (IEX)

Manufacturing company IDEX (NYSE:IEX) beat Wall Street’s revenue expectations in Q1 CY2025, with sales up 1.7% year on year to $814.3 million. Its non-GAAP profit of $1.75 per share was 6.7% above analysts’ consensus estimates.

Company Overview

Founded in 1988, IDEX (NYSE:IEX) is a global manufacturer specializing in highly engineered products such as pumps, flow meters, and fluidics systems for various industries.

Gas and liquid handling companies possess the technical know-how and specialized equipment to handle valuable (and sometimes dangerous) substances. Lately, water conservation and carbon capture–which requires hydrogen and other gasses as well as specialized infrastructure–have been trending up, creating new demand for products such as filters, pumps, and valves. On the other hand, gas and liquid handling companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.

Competitors offering similar products include Dover (NYSE:DOV), Xylem (NYSE:XYL), and Parker Hannifin (NYSE:PH).

Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Regrettably, IDEX’s sales grew at a tepid 5.9% compounded annual growth rate over the last five years. This fell short of our benchmark for the industrials sector and is a poor baseline for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. IDEX’s recent performance shows its demand has slowed as its revenue was flat over the last two years.

We can dig further into the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, IDEX’s organic revenue averaged 2.1% year-on-year declines. Because this number is lower than its normal revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline results.

This quarter, IDEX reported modest year-on-year revenue growth of 1.7% but beat Wall Street’s estimates by 1.1%.

Looking ahead, sell-side analysts expect revenue to grow 4.5% over the next 12 months. While this projection implies its newer products and services will spur better top-line performance, it is still below the sector average.

All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products and commands stronger pricing power.

IDEX has best-in-class unit economics for an industrials company, enabling it to invest in areas such as research and development. Its margin also signals it sells differentiated products, not commodities. As you can see below, it averaged an elite 44.4% gross margin over the last five years. Said differently, roughly $44.44 was left to spend on selling, marketing, R&D, and general administrative overhead for every $100 in revenue.

This quarter, IDEX’s gross profit margin was 45.3%, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

IDEX has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 22.1%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, IDEX’s operating margin decreased by 2.2 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q1, IDEX generated an operating profit margin of 17.4%, down 2.7 percentage points year on year. Since IDEX’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

IDEX’s unimpressive 6% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

IDEX’s two-year annual EPS declines of 3.1% were bad and lower than its flat revenue.

In Q1, IDEX reported EPS at $1.75, down from $1.89 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 6.7%. Over the next 12 months, Wall Street expects IDEX’s full-year EPS of $7.75 to grow 7.8%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

IDEX has shown terrific cash profitability, putting it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the industrials sector, averaging 18.3% over the last five years.

Taking a step back, we can see that IDEX’s margin dropped by 5.4 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

IDEX’s free cash flow clocked in at $91.4 million in Q1, equivalent to a 11.2% margin. The company’s cash profitability regressed as it was 5.8 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although IDEX hasn’t been the highest-quality company lately, it historically found a few growth initiatives that worked. Its five-year average ROIC was 13.9%, higher than most industrials businesses.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, IDEX’s ROIC has decreased over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

IDEX reported $594.1 million of cash and $1.94 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $874 million of EBITDA over the last 12 months, we view IDEX’s 1.5× net-debt-to-EBITDA ratio as safe. We also see its $19 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing IDEX beat analysts’ EBITDA expectations this quarter. We were also glad its organic revenue outperformed Wall Street’s estimates. On the other hand, its EPS guidance for next quarter missed. Zooming out, we think this was a solid print. The stock remained flat at $173.97 immediately following the results.

Updated: May 22, 2025 at 11:10 PM EDT

Are you wondering whether to buy IDEX or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

We cheer for all companies making their customers lives easier, but in the case of IDEX, we’ll be cheering from the sidelines. First off, its revenue growth was uninspiring over the last five years, and analysts don’t see anything changing over the next 12 months. And while its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its cash profitability fell over the last five years.

IDEX’s P/E ratio based on the next 12 months is 21.7x. At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $208 on the company (compared to the current share price of $181.13).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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