Charles River Lab Stock -80%, Is It Time To Buy Dip?

$Charles River Laboratories(CRL)$

Hey everyone, welcome back. Today, we’re going to be taking a closer look at Charles River Laboratories International, stock ticker CRL. As always, this isn’t personalized investing advice — this is just how I go about analyzing stocks based on the data, my process, and a bit of historical perspective.

Now, before we dive into Charles River specifically, let me just say — I took a short break yesterday from making article. After publishing one every day for about a week, the market finally got a little too crazy. When stocks are swinging wildly minute by minute, it's honestly hard to keep up. You can put in the work to research something, record the video, edit it, get it uploaded — and by the time it's live, half the data’s already outdated. So, I decided to just let things cool off for a day.

Of course, “cool off” is a relative term. Today wasn’t calm by any means — but at least it wasn’t another 10% down day across the board. On Thursday, April 10th, 2025, and one name stood out immediately on my watchlist: Charles River, which dropped a brutal 28% in a single session. That’s not something you see every day.

Now I’ve been following CRL for quite a while. I don’t currently own it, but it’s been on my radar as a potential buy candidate — the kind of compounder I keep tabs on. So when I saw a nearly 30% drop in one day, I had to take a closer look. I asked myself: What just happened here?

Fundamentals Analysis

Before jumping into the news or market reactions, I always like to zoom out and examine the historical fundamentals. What’s the earnings profile like? How cyclical is the business? What kind of growth has it generated over time?

So let’s look at the earnings history. During the Great Recession, CRL’s earnings fell about 35%, which places it in that “moderately cyclical” category. Not bulletproof, but also not disastrously fragile. After that downturn, however, the company resumed solid growth. We saw a very steady upward trend in earnings, with a noticeable COVID-era boost that’s typical of many healthcare-related firms.

Over the long run — looking past the pandemic bump — I estimate they’ve grown earnings at about 12% per year. That’s a respectable number. If we narrow it to pre-COVID trends, we’re still looking at solid double-digit growth. In other words, this is a company that’s been compounding earnings at a pretty healthy rate for quite some time.

But here’s where things get interesting.

The Valuation Got Way Ahead of Itself

Back during the peak of the pandemic-fueled bubble, CRL was trading at a P/E of nearly 50. That’s an eye-popping valuation for a company with 12% long-term earnings growth. Now, if they were compounding at 25%+ annually and had a long runway ahead, sure — maybe you could justify that kind of premium.

But let’s be real: the pandemic was never going to last a decade, and anyone taking a step back could’ve seen that this COVID-driven boost to earnings was temporary. And yet, investors priced it like it would continue forever. That’s a classic mistake.

Since then, earnings have normalized, and the multiple has compressed. The stock is now down about 80% from its highs. Even before today’s 28% plunge, it was already down in the 65–70% range.

Now, when I see a business with a long-term growth rate of 10–12% trading at a massive discount to its highs, my first instinct is: time to run the numbers. Is this a potential buy?

My Valuation

So I pulled up my spreadsheet. I update it every quarter with CRL’s latest earnings and keep tabs on valuation levels. And even after this enormous drawdown, the stock still hadn’t hit my buy price.

Now I know — people sometimes give me a hard time about how conservative my buy prices are. But let me explain why I set the bar so low.

Back in 2008–2009, CRL’s earnings only dropped 35%, but its stock price fell more than 70%, and that preceded the earnings bottom by a full two years. That tells you how brutal the market can be in a panic — it doesn’t wait for confirmation, it just gets out.

So I used that kind of drawdown as a benchmark for a “recessionary buy price”. It assumes the market could behave just as irrationally this time around — especially since, in my view, we’ve been in a fairly risky macro environment since at least early 2022.

If the market reprices CRL similarly, the P/E could compress all the way down to 7, which for a 12% grower would be incredibly cheap. For context: if you had bought CRL at those levels during the last downturn and held until the pre-COVID valuation returned to a more normal P/E of 25, you’d be looking at a 700% return over 10 years, or around 20% CAGR. That’s exactly the kind of asymmetric return profile I’m looking for.

As of today, though, CRL still needs to fall about another 15% to reach my deep-value buy trigger. So while we’re getting closer, it’s not quite there yet.

What Caused the 28% Drop?

Alright — so what happened today?

The short version is: regulatory risk.

The FDA announced a major policy shift: they’re planning to move away from traditional animal testing for new drug approvals, and instead explore alternatives like AI simulations and human data from foreign clinical trials.

Now, I don’t claim to be an expert on drug development protocols. But I read that and went: Wait — we’re replacing monkey testing with AI and overseas human testing? I mean, that raises a lot of ethical and logistical questions, and whether it’ll actually work remains to be seen.

But regardless of whether it’s feasible or not, the market clearly believes this is bad news for Charles River.

And here’s why: I asked AI to estimate how much of CRL’s revenue is tied to animal testing, and the answer was shocking — around 79%. That’s a massive chunk of the business potentially at risk.

So yeah, suddenly the 28% drop in a single day starts to make sense. This wasn’t just a bad earnings report or a weak quarter — this was a potentially existential risk to a core part of their business model.

A Few Lessons From the Charles River Situation

So, I think there are a couple of key lessons here.

First, you can’t go full quant — at least not with my system. I know some people can, and do, run fully systematic portfolios, but the way I approach investing, there always has to be some human judgment layered on top. You need that flexibility to step back and say, “Hey, something’s changed in the real world, and the numbers aren’t going to catch that fast enough.”

This CRL situation is one of those moments. Normally, after a 28% drop, I’d be thinking: Okay, am I buying a little on the way down? Am I waiting for my full buy price? Am I looking for momentum to turn first? All of those are valid tactical questions in a standard setup.

But this time — as soon as I understood the FDA’s announcement and how central animal testing is to CRL’s revenue — I just deleted my buy price. That’s it. Gone.

Now, I’ll probably leave a note in my spreadsheet about the situation. Something like: “Significant regulatory change. Historical valuation metrics may no longer apply. Uncertainty around long-term earnings power.” You get the idea.

The change isn’t happening overnight — I think the FDA policy is being phased in — but the writing's on the wall. That makes it hard to value this business based on any sort of historical trend. Could things reverse? Sure. Maybe the AI simulations don’t work, or there's a backlash when people start experiencing unexpected side effects, and regulators go back to traditional testing. That wouldn’t surprise me. So I’ll leave CRL on my radar. But I’m not buying it here, and probably won’t unless the situation changes again.

Was Buying at $200 a Mistake?

Now, let’s talk about people who already owned the stock — especially those who bought it under $200.

Honestly, I don’t think that was a mistake. At those levels, it looked like a fairly priced stock, maybe even a bit cheap relative to a very expensive overall market. It wasn’t cheap enough for me, because I tend to hunt for deep discounts, but for someone running a more typical portfolio, that could’ve made sense.

If you look at the valuation then — CRL was trading around 16x earnings, which is right in line with where it bottomed during 2020. That wasn’t a crazy multiple by any means.

The people who really got hurt were the ones buying up near the highs — 40x, 50x earnings — when it was clear that the COVID-era growth wasn’t sustainable. That’s just overpaying. But for the $200 buyers? No, I don’t think they did anything wrong. This was a true black swan — a random memo from the FDA that fundamentally alters the business model. It’s the kind of risk that’s nearly impossible to predict.

So How Do You Protect Yourself?

This is where position sizing comes in.

To me, the only real protection you have as a long-term investor is diversification — especially at the start. I try to keep my initial positions at 0.5% to 2% of a portfolio, max. If something grows over time and becomes a larger position? Great. I’m not a rebalancer — I like to let winners run. But I am strict on initial size.

Why? Because this kind of thing can happen to any business. Not this exact scenario — but some unexpected regulatory or political or legal curveball that blindsides everyone and tanks the stock. You can't eliminate that risk. So the only way to keep it from wiping you out is to keep the bet size small when you enter.

I’ve been hit by this myself. I owned Signature Bank before it collapsed — and it literally disappeared over a weekend. I think we got a little dividend at one point, but it was still a 98% loss. But I only had a 1% weight initially. It hurt, but it didn’t change my life. That’s the goal.

And I think this ties into something Charlie Munger said — even he lost a lot of money on Alibaba late in his career. One of his biggest regrets, despite investing successfully for over 70 years. That’s the danger of concentrated bets. Unless you're running a business you fully control, like Buffett at Berkshire or Charlie at the Daily Journal, most of us simply don't have that level of visibility or control.

Final Thoughts

So yeah — Charles River could’ve easily been a stock I owned under different circumstances. It had the profile I usually like: decent moat, steady growth, and long-term compounding potential. But when a single agency decision can wipe out a third of the value in a day — that tells you how fragile the investing landscape can be.

If there’s one takeaway, it’s this: concentration is a double-edged sword. In this market, where news and policy changes can move faster than ever, spreading your bets is more important than ever.

To wrap things up: Charles River is a high-quality, long-term compounder that got wildly overvalued during the COVID bubble. Since then, the stock has collapsed nearly 80% and is now approaching deep-value territory — but still hasn’t hit my conservative buy price just yet.

Today’s drop was triggered by a major regulatory announcement that could materially impact their business, and while I don’t know how this will ultimately play out, the risk is clearly elevated now. It might take time for the dust to settle.

If you’re a long-term investor and you’ve done the work on CRL’s future beyond animal testing, this could become an interesting opportunity soon. But for me and my strategy — I’m still on the sidelines for now, watching closely, and waiting for that extra 15% drop before I take action.

Stay nimble, stay diversified — and always leave a little room for judgment.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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