On July 21, 2023, Illumina Inc (ILMN, Financial) recorded a gain of 3.43%, with its stock price rising to $190.49. With a market cap of $30.1 billion and sales of $4.4 billion, Illumina is a major player in the Medical Diagnostics & Research industry. However, the company's GF Value, a unique measure of intrinsic worth calculated by GuruFocus, stands at $390.66, indicating that the stock might be a possible value trap. Before investing, it's crucial to delve deeper into the company's financials and operations.
Illumina Inc (ILMN, Financial) is a leading provider of tools and services for genetic material analysis, catering to life science and clinical lab applications. The company's high-throughput technology enables whole genome sequencing in humans and other large organisms, while its lower throughput tools are used for applications requiring smaller data outputs, such as viral and cancer tumor screening. Illumina also sells microarrays that facilitate lower-cost, focused genetic screening, primarily for consumer and agricultural applications.
Understanding Illumina's Valuation
The GF Value of Illumina (ILMN, Financial) suggests that the stock may be overvalued. This is calculated based on historical trading multiples, past business growth, and analyst estimates of future business performance. If the stock price is significantly above the GF Value Line, it implies overvaluation and potential poor future returns. Conversely, if it's significantly below the GF Value Line, higher future returns can be expected. Currently, Illumina's stock price of $190.49 per share and a market cap of $30.1 billion suggest a potential value trap scenario.
One reason for this assessment is Illumina's Piotroski F-score of just 3 out of 9. This low score indicates deteriorating aspects in the areas of profitability, funding, and efficiency. Investors are thus advised to consider potential long-term risks beyond the company's low valuation. To learn more about the Piotroski F-score, please click here.
Illumina's Financial Strength
Investing in companies with poor financial strength can lead to a higher risk of permanent capital loss. Illumina's cash-to-debt ratio of 0.5 is worse than 67.92% of companies in the Medical Diagnostics & Research industry, indicating fair financial strength. A detailed look at Illumina's debt and cash over the past years can be found here.
Profitability and Growth
Profitable companies typically carry less risk, especially those with consistent profitability over the long term. Illumina has been profitable 9 years over the past 10 years, with a loss per share of $-28.53 in the last 12 months. Its operating margin of 2.38% is better than 52.86% of companies in its industry. However, Illumina's average annual revenue growth of 7.1% ranks worse than 60.89% of companies in the Medical Diagnostics & Research industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide insights into its profitability. Illumina's ROIC of 0.89 for the past 12 months is significantly lower than its WACC of 10.57, suggesting that the company is not creating value for shareholders. A historical comparison of Illumina's ROIC and WACC can be found here.
Conclusion
In conclusion, Illumina's stock is estimated to be a possible value trap. Despite its fair financial strength and strong profitability, its growth ranks poorly compared to other companies in the Medical Diagnostics & Research industry. For more information on Illumina's 30-Year Financials, please click here.
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