Illumina A Long-Term Buy, With Caveats

Sep. 15, 2019 10:37 PM ETIllumina, Inc. (ILMN)10 Comments
William Meyers profile picture
William Meyers


  • Illumina's stock price is in a slump.
  • Q2 2019 results and Q3 guidance were weak.
  • Long term, the gene-sequencing demand trend should kick back in.

Illumina (NASDAQ:ILMN) is practically synonymous with gene-sequencing equipment. Over the past decade, its stock has had a phenomenal upward run, climbing from $32 per share to a 52-week high of $380.76 on July 5, 2019. Then revenue growth paused, sending the stock to a 52-week low of $263.30 on September 9. It has bounced upward a few dollars these last few days.

ChartData by YCharts

Illumina has almost always had a high P/E ratio, implying investor confidence in ever-increasing earnings. Despite the drop in the stock price, the P/E stands near 45, implying perhaps more confidence than Q2 results and current y/y growth rates would warrant. However, I believe the gene-sequencing business is still relatively early in its growth arc. My thesis is that, for those who understand the risk, this may be one of the rare opportunities to buy Illumina at a reasonable price. However, it would be a stretch to call Illumina undervalued. There is the danger that Q2 results are a warning signal that the growth curve for DNA sequencing equipment is flattening. If that is true, continued slow growth in earnings might result in an even lower stock price as the high P/E becomes less defensible.

Illumina Q2 2019 results

Illumina Q2 2019 revenue was $838 million, down 1% from $846 million in Q1 and up 1% from $830 million in the year-earlier quarter. That is the crux of the argument to sell Illumina. Most companies with near-flat y/y revenue growth would be lucky to have a P/E of 15. On that basis, Illumina's stock should be about one-third of its current price. However, the quarter is likely an anomaly. Slide 7 from the Q2 presentation illustrates the rapid revenue growth followed by the pullback:

GAAP diluted EPS was $1.99, up 27% sequentially from $1.57, and up 41% from $1.41 year earlier. That looks

This article was written by

William Meyers profile picture
I provided stock and bond research and analysis to a small cap specialist investor, Lloyd Miller, from 2002 until his death in January 2018. For my own account I invest mainly in technology and biotechnology stocks. My technology and investment web site is, where readers can view the notes I take to make decisions and to write articles for Seeking Alpha.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

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