Illumina: Missed March Opportunity, Good Long-Term Prospects

May 12, 2020 12:18 AM ETIllumina, Inc. (ILMN)4 Comments
William Meyers profile picture
William Meyers


  • Illumina's sales have been hurt by the pandemic.
  • Current y/y growth rate would normally earn a lower P/E ratio.
  • Illumina's investors are betting on a return to stronger revenue growth.

Illumina (NASDAQ:ILMN) has long been one of the biotechnology equipment success stories. It makes DNA sequencers, which are essential equipment for modern medical research and diagnosis. However, sales growth has paused. The stock dropped to a 52-week low of $196.78 in mid-March, but like me, you probably opted out of that buying opportunity. In my case, it was because Illumina still had a high P/E ratio, which has now risen to near 52. To justify the current ratio, Illumina will need to return to more rapid growth. I think much of the growth for sequencer sales is still in the future, but right now medical equipment budgets are strained by the pandemic. In this article, I will look at Q1 results for patterns that may tell us about the future. My conclusion will be that the current price of the stock is fine for long-term investors, but short-term buyers are at risk buying now if Q2 and Q3 results continue to show a decline in demand.

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Illumina Q1 2020 Result Highlights

Illumina's Q1 2020 results were released on April 30. Revenue of $859 million was up just 2% from Q1 2019. Traditionally that is the kind of growth one might expect from an older industry and might result in a stock price based on a price-to-earnings ratio of 10 to 15. But for Illumina it is an abnormally low growth rate. Before the pandemic hit, in Q4 2019, the y/y revenue growth rate was 10%.

Illumina has healthy margins on its DNA sequencing machines, but the margins on supplies needed to operate the machines, and on maintenance services, are even fatter. The margins held up on a non-GAAP basis, but the GAAP numbers were hit pretty hard. GAAP earnings were $173 million, or $1.17 per share, down 28% y/y. Non-GAAP earnings (which exclude selected non-cash items) were $243 million or $1.64 per share, up

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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