Why Bioventix's (LON:BVXP) share price could continue to rocket

The best companies compound investment returns at consistently above-average rates over the long term. These stocks are different because they've got what billionaire investor Warren Buffett, calls economic moats. These moats can be divided into different types:

• Intangible Assets - Such as brands that customers love, valuable patents or regulatory approvals
• Switching Costs - It might be too costly, complicated or unnecessary for customers to look elsewhere
• Network Effects - When customers become part of a product it creates tremendously powerful businesses
• Cost Advantages - Superior processes and unique locations and assets make it hard for others to compete
• Great Scale - Large infrastructure and distribution networks are powerful barriers to entry in many industries

Bioventix (LON:BVXP) is a developer and supplier of antibodies to some of the most well-respected names in the healthcare sector. Stockopedia classifies it as an adventurous small cap in the Biotechnology & Medical Research industry. Bioventix's (LON:BVXP) share price has been on a tear ever since it floated in 2016, as you can see from the share price chart below. What has driven this incredible performance, and can it continue?

Has Bioventix (LON:BVXP) got a moat?

When it comes to searching for companies with moats, some of the biggest clues actually lie in their financial statements. By looking at the right ratios you can get an understanding of the competitive strength and profit power in a business.

Here's what they are and why they are important - and how Bioventix stacks up against them:

1. High rates of Free Cash Flow - the measure of a thriving company.
   - A high ratio of free cash flow to sales can be a very positive sign. For Bioventix, the figure is an impressive 66.4%.   
2. High Return on Capital Employed - the measure of a company growing efficiently and profitably.
   - A 5-year average ROCE of more than 12 percent is a pointer to strong efficiency. For Bioventix, the figure is an eye-catching 51.7%.
3. High Return on Equity (compared to peers) - the measure of a company making good profits from its assets.
   - Bioventix has a 5-year average ROE of 47.2%.
4. High Operating Margins (compared to peers) - the measure of a company with pricing power
   - Bioventix has a 5-year average operating margin of 73.4%.  

What does this mean for potential investors?

Some of the best quality stocks in the market have defensible models that can deliver high levels of shareholder returns over the long term. But there are no guarantees and it's important to do your own research. Indeed, we've identified some areas of concern with Bioventix that you can find out about here.