The California-based firm Bio-Rad Laboratories offers a combination of resilient cash flows, market leadership, and a strategic asset that could unlock substantial value for patient investors.
It operates across two complementary divisions: life science, which provides tools for gene expression, protein analysis and food safety testing; and clinical diagnostics, which supplies testing systems and quality control products to healthcare institutions worldwide.
What makes this business particularly attractive is its underlying economics.
The company has masterfully implemented a razor-and-blade business model in the diagnostics space. While the initial equipment sales lay the groundwork, it's the consumables – reagents, test kits, and other recurring supplies – that drive profitability.
Recurring revenue
These consumables account for approximately 75% to 80% of total revenue, creating a predictable, high-margin income stream that provides stability even during economic uncertainty.
Once a hospital or lab invests in Bio-Rad's diagnostic equipment, they’re effectively locked into purchasing compatible consumables for years to come. This dynamic mirrors software-as-a-service more than traditional manufacturing.
Market leadership
Bio-Rad has carved out dominant positions in several critical niches within molecular diagnostics. The company is a leader in digital PCR technology, blood typing systems, and laboratory quality control solutions.
These aren't niche markets – they're mission-critical tools used daily across hospitals, pharmaceutical companies, and research institutions globally.
This leadership translates into pricing power and customer stickiness. Switching costs are substantial, both financially and operationally, and Bio-Rad’s decades-long reputation for reliability and accuracy creates formidable barriers to entry.
Wild card
Perhaps the most intriguing aspect of Bio-Rad's investment lies in its balance sheet. The company owns over 30% of Sartorius AG, a German leader in single-use bioprocessing consumables that has become indispensable to the biopharmaceutical manufacturing industry.
This stake, while not integrated into Bio-Rad’s financials, represents more than half of its market capitalisation. It gives investors indirect exposure to a high-growth bioprocessing business at a meaningful discount.
Sartorius has benefited significantly from the shift toward single-use technologies in biomanufacturing, placing it at the heart of the biologics revolution.
Whether Bio-Rad monetises, retains, or strategically leverages this holding, it provides an additional revenue stream beyond its core operations.
Financial Strength and Discipline
Bio-Rad's balance sheet reflects management's conservative capital allocation.
The company maintains a net cash position, providing financial flexibility to invest in growth opportunities, withstand downturns, or return capital. The company has repurchased $242m of stock over the year to date, signalling confidence and discipline.
For value-oriented investors, buybacks at depressed valuations are a powerful tool – especially when shares trade below intrinsic value.
Valuation
Adjusting for the Sartorius stake, Bio-Rad's core diagnostics business trades at a single-digit earnings multiple, a valuation that seems incongruous with its market position, recurring revenue profile and cash generation.
On a look-through basis, including its share of Sartorius's earnings, investors gain combined exposure at approximately 15 times earnings. This disconnect presents an attractive entry point for investors seeking quality businesses at a reasonable price. The market appears to be overlooking the sum-of-the-parts value and the durability of Bio-Rad's core earnings.
Nisha Thakrar is product specialist at Nedgroup Investments. The views expressed above should not be taken as investment advice.