What’s Happening With Illumina Stock?
Illumina stock (NASDAQ: ILMN) saw a significant 53% fall in the last twelve months, underperforming the broader S&P500 index, down 16%. Even in the longer term, ILMN stock is down 38% from levels seen in late 2019, compared to a 22% rise for the S&P 500 index. Legal troubles around the acquisition of Grail – a cancer blood test developer – have weighed on ILMN stock over the last year or so.
This 38% fall for ILMN stock since late 2019 can primarily be attributed to 1. the company’s P/S ratio falling 50% to 6.8x trailing revenues now, vs. 13.7x in 2019, 2. a 7.2% rise in its average total shares outstanding to 157 million, partly offset by 3. Illumina’s revenue rising 33% to $4.7 billion over the last twelve months, compared to $3.5 billion in 2019. Our dashboard on Why Illumina Stock Moved has more details.
Illumina’s sales have been rising due to the booming demand for gene sequencing. The company’s cancer screening and population genomics testing drive its revenue growth. Also, gains from Covid-19 surveillance programs have contributed to the top-line expansion. Illumina has a recurring revenue model from consumables and accessories, accounting for 83% of the company’s total sales in 2021.
Recently, the company provided a frail outlook for 2023, with sales expected to be between $4.90 and $5.03 billion, aligning with the consensus estimates, but an earnings forecast of $1.25 to $1.50 on a per share and adjusted basis, well below the consensus estimate of $2.53. This did not sit well with the investors resulting in a sharp fall in ILMN stock this week.
Illumina acquired Grail in 2021 despite regulatory concerns, and it is likely to face a fine of 10% of its global annual turnover as a penalty for closing the deal without EU antitrust approval. [1]
Looking at valuation, Illumina appears to be significantly undervalued. At its current levels of over $200, it is trading at just 7x forward expected revenues, compared to the last three-year average of over 13x. However, looking at ILMN stock purely from a valuation perspective may not be wise. While the company’s top line is expected to see steady growth, its penalties and operating losses (if any) around the Grail acquisition will likely weigh on the bottom line growth in the near term. Given the bottom-line risk, ILMN stock is best avoided for now, in our view.
While ILMN stock is best avoided for now, it is helpful to see how Illumina’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Furthermore, the Covid-19 crisis has created many pricing discontinuities, which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for Ecolab vs. Philip Morris.
What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.
| Returns | Jan 2023 MTD [1] |
2023 YTD [1] |
2017-23 Total [2] |
| ILMN Return | -4% | -4% | 51% |
| S&P 500 Return | 3% | 3% | 77% |
| Trefis Multi-Strategy Portfolio | 7% | 7% | 236% |
[1] Month-to-date and year-to-date as of 1/12/2023
[2] Cumulative total returns since the end of 2016
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- Exclusive: Illumina to face EU fine of 10% of turnover over Grail deal -sources, Foo Yun Chee, Reuters, Jan 12, 2023 [↩]