Biotech Firm Illumina Fell 15% In 5 Days – Should You Sell?

Illumina’s (NASDAQ:ILMN) stock dropped nearly 15% in the last 5 trading days while the S&P 500 barely moved. It appears more of a market correction driven by profit taking, considering that the stock has gone up this year despite shrinking sales. So what happens next? Is this a time to get out, or is this in fact a time to buy the stock? Different perspectives tell different stories but overall, we believe that Illumina can still give returns to its investors.

We arrive at our conclusion by assessing Illumina’s recent market movement from three perspectives:

1. Relative positioning in the market
2. Underlying financial trends, and
3. The output of the Trefis machine learning engine which looks at past patterns to predict near term behavior.

Our dashboard Big Movers: Illumina Moved -14.8% – What Next? lays this out.

What relative positioning suggests: Are you a value investor who identifies and invests in under-priced securities based on market comparisons? Then this might be important to you.

Illumina’s stock price increased 5.5% this year, from $331.74 to $349.93, before moving -14.8% in the last week, and ending at $298.02. At the beginning of this year, Illumina’s trailing 12 month P/E ratio was 49. This figure increased 52% to 74, before ending at 63 after the last week’s move. So the stock is certainly more expensive now compared to the year’s beginning. We also note that compared to Illumina’s P/E multiple of 63, the figure for its peers Agilent Technologies and Pacific Biosciences stands at 44 and 17 respectively. This suggests the possibility of a further correction in the stock price.

What fundamentals suggest: Want to consider long term investment in Illumina? Then pay attention here.

Illumina’s stock price decreased -14.8% last week. In comparison, the stock has increased 52% between 2017 and 2019, and has increased 36% between 2017 and now. This implies that the recent move is a sharp reversal in the long-term trend. Whether it sustains or not, depends on how underlying fundamentals shape up. Illumina’s revenue has increased 29% from $2,752 Mil in 2017 to $3,543 Mil in 2019. For the last 12 months, this figure stood at $3,351 Mil, implying a decrease of -5.4% over 2019 numbers. Margins tell a similar story. Illumina’s net margins have increased 13% from 24.6% in 2017 to 27.9% in 2019. For the last 12 months, this figure stood at 20.7%. Thus, it seems that the business is growing consistently if we exclude the temporary impact of Covid-19. While sales are shrinking this year, we expect a nearly 30% rebound next year. This suggests that Illumina can be a good long-term bet.

What machine learning algorithm suggests: More interested in short term returns? Then you might want to give this perspective more weight.

Our AI engine analyzes past patterns in stock movements to predict near term behavior for a given level of movement in the recent period and suggests about a 35% probability of Illumina moving up another 10% over the next 21 trading days. Compared to this, the probability of moving down by -10% is 27%, suggesting a greater likelihood of upside despite such a strong recent down move. Our detailed dashboard highlights the chances of Illumina’s stock rising after a fall and should help you understand near-term return probabilities for different levels of movements.

Taking all 3 perspectives together, we believe that Illumina can give returns to investors. But, what if you’re looking for a more balanced portfolio instead? Here’s a high quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

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