Today we're going to take a look at the well-established Illumina Inc (NASDAQ:ILMN). The company's stock led the NasdaqGS gainers with a relatively large price hike in the past couple of weeks. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Today I will analyse the most recent data on ILMN’s outlook and valuation to see if the opportunity still exists. Check out our latest analysis for Illumina
What's the opportunity in ILMN?
The stock seems fairly valued at the moment according to my relative valuation model. I’ve used the price-to-equity ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 41.1x is currently trading slightly above its industry peers’ ratio of 39.3x, which means if you buy ILMN today, you’d be paying a relatively fair price for it. And if you believe that ILMN should be trading at this level in the long run, there’s only an insignificant downside when the price falls to its real value. Furthermore, it seems like ILMN’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s fairly valued. This is because ILMN’s stock is less volatile than the wider market given its low beta.
What kind of growth will ILMN generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at ILMN future expectations. Though in the case of ILMN, it is expected to deliver a negative earnings growth of -5.28%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.
What this means for you:
Are you a shareholder? Currently, ILMN appears to be trading around its fair value, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on ILMN, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on ILMN for a while, now may not be the most advantageous time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystalize your views on ILMN should the price fluctuate below its true value.