Sequenom: The Future Is Looking Up

| About: Sequenom, Inc. (SQNM)

Our old buddy Sequenom (NASDAQ:SQNM) has been surging this last week, as analysts are enjoying the story that management is telling them, along with momo daytraders jumping in, I am sure. I am not sure how you value a company that no longer has verifiable results, but I'd assume that 90% of the people in the stock today could care less about such details as long as it's moving in the right direction - it's the right stock for the week. Or month - the stock has had only 1 down session in 15 days and is quickly closing on 100% appreciation from that long base.... out of the blue. (Click to enlarge)

I am still keeping my eye on this one because, if even 75% of what they once promised was accurate, it should still be a big winner. But at this point it seems more faith than anything else.

Via Barron's:

  • Shares of genetic analysis and testing firm Sequenom are up $1.56, or 22.5%, at $8.48, after Cantor Fitzgerald analyst Pamela Bassett raised her rating on the shares to “Buy” from “Hold,” saying she has renewed confidence, after meeting with management, that the company is on track to develop non-invasive diagnostic tests. Bassett raised her price target to $16 from $4. Bassett’s note follows on an upgrade yesterday to “Hold” from “Sell” by Hapoalim’s Raghuram Selvaraju.

I love this valuation analysis... when you cannot come up with a reasonable explanation start throwing stuff against the wall, 1999 style.

  • Bassett values the company as a combination of a 36 times P/E on estimated 2011 earnings and an enterprise value-to-revenue multiple of four times, and a pretty high discount rate of 25% to account for risks around the company building out commercial lab facilities for its tests, building its sales force, and other endeavors.

Of course, these 2011 estimates are based (mostly) on a test we don't have accurate data on anymore.

  • After an expected off of $67 million this year and $44 million next year, Bassett has the company making $41 million in net income in 2011, on $279 million in revenue. (The company had just $47 million last year.)

Again, $47M in revenue to $279M in 2011 based on a test we no longer have accurate data on... must have been a hell of a meeting. I am not saying she is wrong or right, I am just interested in the fact that she would put her entire credibility out there on the line based on management comments.

  • Sequenom’s share price collapsed last year after mishandling of some research data led to the ouster of the CEO and other senior executives and cast doubt on the company’s ability to develop a non-invasive diagnostic test for Down Syndrome.

Disclosure: No position

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