As the Dechra Pharmaceuticals share price crashes, should I buy?

The Dechra Pharmaceuticals share price has lost almost a quarter of its value already in 2022. Could this be a buying opportunity for our writer’s portfolio?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Worker on sofa and team on laptop screen talking and discussion in video conference and dog interruption.

Image source: Getty Images

Animal nutrition specialist Dechra Pharmaceuticals (LSE: DPH) has been giving both animals and its own shareholders something to chew on lately. The Dechra Pharmaceutical share price has crashed 24% so far this month.

Could this present a buying opportunity for my portfolio?

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

Long-term growth prospects

The recent price tumble comes after a strong run for the company’s shares. Indeed they are still up 9% on the past year. Over five years, Dechra has been even more rewarding – the shares have gone up 180%.

That reflects the fact that the company has seen strong growth and operates in a financially attractive industry. Animal nutrition is potentially very profitable, because both farmers and pet owners want to ensure the health of their animals. Revenues tend to be resilient, as animal medical needs remain the same no matter the state of the economy.

Last year, Dechra saw revenues increase 18%. Earnings per share improved even more, jumping 56%. Not only do those results speak to the strength of Dechra’s business model, I reckon it still has a long growth runway ahead of it. For the first half of its current year, the company increased revenues by 15%, excluding currency impacts. This month it updated the market and said its full-year outlook is in line with the upper end of management expectations.

All of that is very positive and at the right price, I would definitely consider buying Dechra for my portfolio. Right now, though, I am steering clear of it. Here is why.

Dechra Pharmaceuticals share price and valuation

A good business does not always make for a rewarding share. For example, investor enthusiasm for a company can push a share price up to a level where the valuation is excessive.

I think Dechra is an example of that right now. After the big jump I mentioned, post-tax profits came in at £56m. Earning more than a million pounds a week from animal supplements shows the business is in rude health. But the market capitalisation – the combined value of its shares – currently stands at £4.4bn. That means that Dechra’s price-to-earnings ratio is 79. I regard that as very high. Even allowing for the prospect of strong earnings growth in coming years I still feel the shares are expensive.

Pricing in risks

On top of that, such earnings growth is not guaranteed. The recent headline revenue growth of 15% excluding currency impact in fact only came to 10% when actual exchange rates were included. Double-digit sales growth is still impressive. But the difference between the two figures is a reminder that exchange rate fluctuations can hurt both revenues and earnings at a company doing business internationally like Dechra.

The company faces other risks to profits, too. In mature markets vets have increasingly been consolidating their practices into large chains. Such chains have strong buying power. That could damage profit margins for animal supplements.

I think this is a good business. At the right price I would be happy to buy its shares for my portfolio to hold for the long term. But I will not be buying at the current Dechra Pharmaceuticals share price.

FREE REPORT: Why this £5 stock could be set to surge

Are you on the lookout for UK growth stocks?

If so, get this FREE no-strings report now.

While it’s available: you'll discover what we think is a top growth stock for the decade ahead.

And the performance of this company really is stunning.

In 2019, it returned £150million to shareholders through buybacks and dividends.

We believe its financial position is about as solid as anything we’ve seen.

  • Since 2016, annual revenues increased 31%
  • In March 2020, one of its senior directors LOADED UP on 25,000 shares – a position worth £90,259
  • Operating cash flow is up 47%. (Even its operating margins are rising every year!)

Quite simply, we believe it’s a fantastic Foolish growth pick.

What’s more, it deserves your attention today.

So please don’t wait another moment.

Get the full details on this £5 stock now – while your report is free.

Christopher Ruane has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

A person holding onto a fan of twenty pound notes
Investing Articles

3 top dividend shares to beat a new recession

I believe that good dividend shares are my best approach to keeping my money safe in a recession. Here are…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Down 80%, this growth stock is a ‘no-brainer’ buy

Growth stocks have faced a torrid time recently. However, after falling 80% since its highs, this FinTech looks too cheap…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Warren Buffett is pouring money into stocks! Here’s a FTSE 100 pick I think he’d buy

Warren Buffett has been investing in several US stocks recently. Here's a FTSE 100 stock I think he'd also be…

Read more »

A Rolls-Royce employee works on an engine
Investing Articles

Is the Rolls-Royce share price on the verge of recovery?

A recent trading update showed the company is benefiting from increased flying hours, so will the Rolls-Royce share price soon…

Read more »

Girl showing thumb up, excited about upcoming shopping
Investing Articles

Is now a good time to buy Tesco shares?

After a strong rally last year, the Tesco share price has stalled. Roland Head gives his view on investing in…

Read more »

The BT Tower looming above London's skyline
Investing Articles

3 reasons to buy – and not buy – BT Group shares

The BT Group share price has a rock-bottom valuation right now. Is this a red flag or does it make…

Read more »

macro shot of computer monitor with FTSE 100 stock market data in trading application
Investing Articles

2 cheap FTSE 100 dividend shares! Should I buy?

These two FTSE 100 dividend shares offer terrific value for money, on paper. Should I load up on them today,…

Read more »

Cheerful young businesspeople with laptop working in office
Investing Articles

5 steps to target a monthly £300 passive income

With his eyes on a target of monthly passive income, here are five steps our writer would take to try…

Read more »