Illumina Is Up 140% In The Past Year, But Can It Illuminate Your Portfolio Going Forward?

| About: Illumina, Inc. (ILMN)


The stock is in overbought territory, with a high risk/reward ratio.

The stock is extremely expensive on any valuation metric measured.

On the bright side, the near- and long-term earnings growth potential are excellent.

Illumina, Inc. (NASDAQ:ILMN) is a developer and manufacturer of life sciences tools and integrated systems for the analysis of genetic variation and function. On 22nd April, '14, the company reported first-quarter earnings of $0.53 per share, which beat the consensus of analysts' estimates by $0.09. In the past year, the company's stock is up 140.26% and is beating the S&P 500 (NYSEARCA:SPY), which has gained 19.53% in the same time frame. Since initiating my position back on 18th October, '13, I'm up 104.26%. I ended up selling half my position when I hit a gain of 100%, and am going to let the house money ride in this name. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if right now is a good time to purchase more of the stock for my growth portfolio.


The company currently trades at a trailing 12-month P/E ratio of 117.33, which is expensively priced, but I mainly like to purchase a stock based on where the company is going in the future, as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 63.66 is currently expensively priced for the future in terms of the right here, right now. The 1-year PEG ratio (5.18), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced, based on a 1-year EPS growth rate of 22.64%. The company has great near-term future earnings growth potential, with a projected EPS growth rate of 22.64%. In addition, the company has great long-term future earnings growth potential, with a projected EPS growth rate of 18.94%.


On a financial basis, the things I look for are the dividend payouts, return on assets, equity, and investment. The company does not sport a dividend to speak of, but is sporting return on assets, equity, and investment values of 7.1%, 14.2%, and 3.9%, respectively, which are all respectable values. In this particular instance, I will skip the dividend aspect of the financials, because the stock is in my growth portfolio, and in the growth portfolio, a stock does not have to have a dividend.


Looking first at the relative strength index chart [RSI] at the top, I see the stock in overbought territory, with a current value of 70.73 and an upward trajectory. As seen from the chart, the stock can run in overbought territory for quite some time before dropping. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line, with the divergence bars increasing in height, indicating the bullish momentum is getting started again. As for the stock price itself ($168.95), I'm looking at $178.27 to act as resistance and the 20-day simple moving average (currently $154.62) to act as support, for a risk/reward ratio which plays out to be -8.48% to 5.52%.

Recent News

  1. The company recently announced a debt offering of $985 million. The notes will be convertible to cash, stock, or a combination of both, with the conversion at 3.9318 shares of common stock per $1,000 invested, or $254.34 per share. The proceeds will be utilized to repurchase up to $600 million of outstanding 0.25% convertible senior notes, which are due in 2016.


There aren't really any good fundamental reasons why the company is up so strongly, but the biotech sector is in an uptrend, and this may just be the case of a rising tide lifts all boats. Fundamentally, the company is extremely expensive, based on next year's earnings estimate and on future growth potential, while sporting excellent near- and long-term earnings growth potential. Financially, it has no dividend to speak of and the financial efficiency ratios are nothing to go writing home about. On a technical basis, the stock is in overbought territory and the risk/reward ratio is too big right now. Due to the overbought technicals, high risk/reward ratio, and expensive fundamentals, I will not be pulling the trigger on this name right now.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: I am long ILMN, SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.