With a daily loss of 3.58% and a significant 3-month decline of 28.68%, investors may wonder if Illumina Inc (ILMN, Financial) is facing a temporary setback or if it reflects a deeper undervaluation issue. Adding to the concern is the company's Loss Per Share of 7.12. This analysis aims to determine if Illumina's current market price truly captures its intrinsic value or if the stock is significantly undervalued, potentially presenting a compelling opportunity for investors.
Before delving into the valuation specifics, let's get acquainted with Illumina Inc (ILMN, Financial). Illumina provides cutting-edge tools and services for genetic analysis with applications in life science and clinical labs. The company's primary revenue, nearly 90%, comes from its sequencing instruments, consumables, and services, which enable whole genome sequencing in humans and other large organisms. Additionally, Illumina offers microarrays, contributing to about 10% of sales, for more focused genetic screening in consumer and agricultural applications. With a current price of $112.94 and a market cap of $17.90 billion, comparing Illumina's stock price to its GF Value—an estimate of fair value—will provide a clearer picture of its valuation.
Understanding the GF Value
The GF Value is a unique metric that reflects the intrinsic value of a stock, incorporating historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line serves as a benchmark, suggesting the fair value at which the stock should trade. When a stock's price significantly exceeds the GF Value Line, it may be overvalued, indicating a potential decrease in future returns. Conversely, if the stock is priced well below the GF Value Line, it may be undervalued, suggesting a higher likelihood of favorable future returns.
Illumina (ILMN, Financial) appears to be significantly undervalued according to the GuruFocus Value calculation. With a GF Value of $232.49 and a current share price of $112.94, the stock's market cap stands at $17.90 billion, pointing to a substantial undervaluation. This discrepancy suggests that Illumina's stock could offer a much higher long-term return than its business growth alone would indicate.
Financial Strength and Stability
Investing in companies with robust financial strength reduces the risk of permanent capital loss. Key indicators such as the cash-to-debt ratio and interest coverage provide insight into a company's financial health. Illumina's cash-to-debt ratio is 0.41, which is lower than 70.26% of its peers in the Medical Diagnostics & Research industry. Despite this, GuruFocus ranks Illumina's overall financial strength at a fair 6 out of 10.
Profitability and Growth Prospects
A consistent track record of profitability is less risky for investors considering stock purchases. Illumina has been profitable 9 out of the last 10 years, with a revenue of $4.50 billion over the past twelve months and a Loss Per Share of $7.12. Its operating margin stands at -4.03%, ranking in the middle of its industry peers. Overall, GuruFocus ranks Illumina's profitability at a strong 8 out of 10.
Growth is a pivotal factor in a company's valuation, with long-term stock performance often correlating with it. Illumina's average annual revenue growth is 7.1%, which is below average compared to its industry. Additionally, its 3-year average EBITDA growth rate is 0%, indicating a potential area for improvement.
Evaluating ROIC vs. WACC
The profitability of a company can also be assessed by comparing its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). Illumina's ROIC over the past 12 months is -1.85%, and its WACC is 10.93%, suggesting that the company is currently not creating value for its shareholders.
Conclusion
In conclusion, Illumina (ILMN, Financial) presents signs of being significantly undervalued. The company maintains fair financial health and exhibits strong profitability, although its growth and value creation metrics suggest areas for potential improvement. For a detailed understanding of Illumina's financials and to explore its 30-year history, interested parties can visit its financial profile.
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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.
