We came across a bullish thesis on Thermo Fisher Scientific Inc. (TMO) on Kontra Investment Xchange’s Substack by Kontra. In this article, we will summarize the bulls’ thesis on TMO. Thermo Fisher Scientific Inc.’s share was trading at $601.71 as of Oct 18th. TMO’s trailing and forward P/E were 37.33 and 25.06 respectively according to Yahoo Finance.
A technician in a lab inspecting an ELISA test kit for use in biopharmaceutical diagnostics.
Thermo Fisher is a leading global manufacturer and distributor of life science tools and diagnostics, offering a comprehensive range of scientific instruments, equipment, consumables, and services across four segments: Analytical Instruments, Life Science Solutions, Specialty Diagnostics, and Lab Products & Services. Based in Waltham, Massachusetts, the company excels in the life sciences tools sector, serving pharmaceutical labs, academic institutions, and diagnostic labs. Thermo Fisher is uniquely positioned within healthcare, boasting durable long-term growth prospects that justify its premium valuation. Over the past decade, it has strategically transitioned into higher-growth life sciences markets, leveraging its robust portfolio and extensive distribution network to accelerate the growth of acquired products and companies. While potential risks include a decrease in global biopharmaceutical research and development spending, Thermo Fisher’s breadth, scale, and diversified offerings provide a strong competitive advantage that enhances its resilience. With a gross margin exceeding 45%, the company has a proven track record of innovation. It is anticipated that Thermo Fisher’s dominant positions in fast-growing life sciences markets, coupled with increasing industry investment in medical research and prudent capital allocation, will continue to drive compounding shareholder returns in the future.
Basically, the bulls’ thesis on TMO is that it is a quality compounder. Quality compounders continue to grow at consistently above average growth rates and as a result investors don’t mind paying a slight premium to buy these stocks. Over a decade or longer, these stocks tend to outperform the market by a wide margin.
If you don’t think TMO isn’t a quality compounder, the stock doesn’t look very cheap at a forward PE of 25.06. The company saw its topline decline by about 4.58% from 2022 to 2023, and cumulative revenue growth rate since 2021 is only 10%.
Thermo Fisher Scientific Inc. is on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 108 hedge fund portfolios held TMO at the end of the second quarter which was 110 in the previous quarter. While we acknowledge the risk and potential of TMO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TMO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.