Stock Analysis

Is There Now An Opportunity In Illumina, Inc. (NASDAQ:ILMN)?

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NasdaqGS:ILMN
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Illumina, Inc. (NASDAQ:ILMN) received a lot of attention from a substantial price movement on the NASDAQGS over the last few months, increasing to US$368 at one point, and dropping to the lows of US$249. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Illumina's current trading price of US$249 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Illumina’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Illumina

What's the opportunity in Illumina?

According to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average, the stock currently looks expensive. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Illumina’s ratio of 55.81x is above its peer average of 31.24x, which suggests the stock is trading at a higher price compared to the Life Sciences industry. In addition to this, it seems like Illumina’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to fall back down to an attractive buying range, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.

What kind of growth will Illumina generate?

earnings-and-revenue-growth
NasdaqGS:ILMN Earnings and Revenue Growth May 9th 2022

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Illumina's earnings over the next few years are expected to increase by 76%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? ILMN’s optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe ILMN should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on ILMN for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for ILMN, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. In terms of investment risks, we've identified 3 warning signs with Illumina, and understanding these should be part of your investment process.

If you are no longer interested in Illumina, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

What are the risks and opportunities for Illumina?

Illumina, Inc. provides sequencing and array-based solutions for genetic and genomic analysis.

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Rewards

  • Trading at 2.9% below our estimate of its fair value

  • Earnings are forecast to grow 62.83% per year

Risks

No risks detected for ILMN from our risks checks.

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