Amidst a challenging market, Illumina Inc (ILMN, Financial) has experienced a notable daily loss of 8.05% and a significant three-month decline of 46.86%. With a Loss Per Share of $26.61, investors are keenly asking: Is Illumina significantly undervalued? This article embarks on a valuation analysis to uncover the answer, inviting readers to explore the detailed assessment that follows.
Company Introduction
Illumina Inc (ILMN, Financial) stands at the forefront of genetic analysis, providing cutting-edge tools and services for life science and clinical lab applications. Approximately 90% of the company's revenue streams from its sequencing instruments, consumables, and services. Illumina's high-throughput technology has revolutionized whole genome sequencing, while its lower throughput offerings cater to more targeted applications like viral and cancer tumor screening. Additionally, the company's microarrays, accounting for around 10% of sales, facilitate cost-effective genetic screening in consumer and agricultural markets. When juxtaposed with the GF Value's fair valuation estimation of $238.18, Illumina's current stock price of $98.37 suggests a significant undervaluation, setting the stage for an in-depth exploration of the company's intrinsic value.
Summarize GF Value
The GF Value is a unique measure, encapsulating the intrinsic value of a stock through a multifaceted approach. It incorporates historical trading multiples, an internal adjustment reflecting the company's past performance and growth, alongside projections of future business performance. This valuation suggests that Illumina (ILMN, Financial) is significantly undervalued, with a potential for higher future returns given its current price point well below the GF Value Line. This discrepancy indicates an attractive opportunity for investors seeking long-term growth.
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Financial Strength
Investing in companies with robust financial strength is crucial to mitigate the risk of capital loss. Illumina's financial fortitude can be assessed by examining its cash-to-debt ratio and interest coverage. With a cash-to-debt ratio of 0.43, Illumina's financial standing is fair, though it trails behind 68.58% of its peers in the Medical Diagnostics & Research industry. This fair financial strength, rated 5 out of 10 by GuruFocus, is an essential factor for investors to consider.
Profitability and Growth
A consistent track record of profitability is less risky and often a hallmark of a sound investment. Illumina has maintained profitability for 9 out of the past 10 years, with a revenue of $4.50 billion and a Loss Per Share of $26.61 over the past twelve months. Despite an operating margin of -4.03%, which is lower than 52.19% of its industry counterparts, Illumina's overall profitability is strong, with a rank of 8 out of 10.
Growth is a vital valuation aspect, as it is closely linked to a company's stock performance over time. However, Illumina's 3-year average revenue growth rate lags behind 58.71% of the companies in its industry. Moreover, its 3-year average EBITDA growth rate is 0%, placing it at the lower end of the industry spectrum. This aspect of growth is a critical consideration for potential investors.
ROIC vs WACC
An insightful profitability indicator is the comparison between a company's Return on Invested Capital (ROIC) and its Weighted Average Cost of Capital (WACC). Ideally, ROIC should surpass WACC to indicate efficient cash flow generation relative to capital investment. Illumina's ROIC of -1.87 and WACC of 11.62 reveal a concerning discrepancy, emphasizing the need for a closer evaluation of the company's capital efficiency.
Conclusion
In summary, Illumina Inc (ILMN, Financial)'s stock appears to be significantly undervalued. While the company's financial condition is fair and its profitability is strong, its growth ranks unfavorably compared to industry counterparts. For those interested in a more comprehensive financial overview of Illumina, the company's 30-Year Financials are available for review.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
