One FTSE 100 stock I’m currently considering adding to my holdings is Dechra Pharmaceuticals (LSE:DPH). I believe it could be set to grow exponentially in the years ahead, which would support greater returns and benefit my portfolio. Should I buy or avoid the shares? Let’s take a closer look.
Pharma for animals
As a quick introduction, Dechra is a pharmaceuticals business that provides treatments and products for animals. It uses biotechnology at the core of its operations to create and enhance its products. A lot of its work involves adapting treatments currently used by humans, for animal use.
So what’s happening with the shares currently? Well, as I write, they’re trading for 3,462p. At this time last year, the stock was trading for 5,231p, which is a 33% decline over a 12-month period. I believe the shares have dropped due to macroeconomic factors and a stock market correction caused by events in Ukraine. Many other FTSE 100 stocks have suffered a similar fate in recent months.
The bull and bear case
Let’s take a look at some of the bull and bear aspects of Dechra shares. I’ll start with some positives.
Firstly, I’m buoyed by the fact that pet ownership is increasing, especially here in the UK. Data compiled by the Pet Food Manufacturers Association, which runs a census each year, reported that cats and dogs especially are increasing in numbers. This is good news for Dechra, as ownership increasing means that demand for medical treatments should rise too. This could boost performance and returns.
Next, I can see that Dechra has a good track record of performance. I’m aware that past performance is no guarantee of the future. However, looking back, I can see it has grown revenue and gross profit for the past four years in a row.
Finally, Dechra shares would boost my passive income stream through dividend payments. The current dividend yield on offer is 1.2%. Although lower than the FTSE 100 average of 3%-4%, I would expect this to increase as the business grows. Dividends are never guaranteed, though.
So to the bear case. With pet ownership increasing, competition for pet pharmaceuticals has jumped too. In fact, Dechra itself pointed towards strong EU-based competitors that could affect its market share in a recent update, as well as performance and growth aspirations.
The other issue I have with Dechra is regulation, which is extremely tight in any pharmaceutical sector and can be changed quickly. This could affect it negatively if it were to impact a popular product line or a new drug in development. It could have a bad impact on performance and investor sentiment.
A FTSE 100 stock I’d buy
To summarise, there are positives and negatives when it comes to Dechra shares. I’ve decided I would add the shares to my holdings. This is because I’m buoyed by the burgeoning marketplace as well as the profile and presence of Dechra. Furthermore, the passive income opportunity and performance track record help my investment case.
