this is aimed particularly at bro but i welcome all comments.
i just started taking a hard look at this company after it fell a good $100 from its high. seems like the company is at the leading edge of genomic sequencing which could evolve to be one of the largest segments in health care. i know that valuation is very high given it is a biotech with a potentially blockbuster future (12.6x Sales, 58x adjusted earnings) but at what point do you give a biotech a break and think its investable. as a guy who tends to lean toward value, i’m having a very difficult time accepting its valuation but at the same time its future potential is probably one of the best in the entire stock market. do you really think this company will get all that more affordable considering its potential to see its products used on every baby born on the planet? would you consider a company like ILMN on dips? do you differentiate between biotechs at all or do you think they’re all simply a massive bubble and even ILMN will get taken down?
Okay, I haven’t looked at this in a long time but I will take a shot –
I did a lot of work on this around 2011-2012 when there was a bubble in sequencing stocks. We looked to get short ILMN but actually bought the stock instead and then went short some of the crappier names like NSPH (nearly a zero) and AFFX. There was a third one that was sequencing as a service that we shorted too but I can’t remember the name and I think it went BK already.
At the time, I spoke with some of the leading sequencing labs in the world, including one at OxBridge. The conclusion was that no one is even close to ILMN and the company will likely dominate the niche and grow for a long time. I don’t know if that has changed, but it probably has not given how far ahead they were. At the time, it was clear that the technology was light years ahead of what anyone else had. LIFE was in the hunt but clearly in second place (since acquired).
The stock is not cheap but I wouldn’t consider it a biotech. It is a life sciences company (lame distinction). But they have significant and growing revenue and profits. It’s a real product, not a stem cell phase 1 trial or something.
I think ILMN’s product is the future and they probably have a 10-20 year runway. Whether that is priced in or not is an open question. CMG, which I recently closed out as a short, also has a long runway but even if you give credit for the full store potential, the stock is probably only worth $300, not $700+. A lot of growth stocks are like that but it’s hard to bet against a category killer.
I don’t break my rules and buy stocks like this because I would feel bad if I lost money on it but I think you could probably do a lot worse than ILMN if you have a long time horizon.
thanks for the insight bud. always a pleasure. i like the life sciences distinction. i might use that when i’m eventually peddling this to higher ups or clients. i’m very hesitant on price, especially considering the recent earnings and guidance misses. i may wait for another dip but do concur that this is one of those few multi-decade stories.
Expensive stocks missing guidance is a good way to lose money. Despite the long-term competitive advantages ILMN has, I wonder if the 2013-2015 biotech bubble has created short-term super normal demand that has now resulted in impossbile yoy comps. Even if it grows for 10+ years, that doesn’t necessarily mean next year specifically will grow or be impressive to the Street. The stock was up nearly 5x over 2.5 years.