Illumina (ILMN) is one of the best growth stocks to own. The company makes gene sequencing systems, which determines the DNA of an organism. I covered wh ILMN in more detail last quarter, if you would like a refresher click here.
llumina has recently come out with new gene sequencing machines that will revolutionize the industry. But sales and profits aren’t zooming as I feel they should. Maybe that will happen in the future, but as of last quarter sales were up 27%. That’s good but it doesn’t support a 62 P/E. I feel ILMN stock is vastly overrated.
One Year Chart
The nice thing about this stock — for us that don’t own it — is the P/E has come down from 73 to 62 in the last quarter. Still I don’t feel that’s good enough. Look at least quarter’s profit growth: 15%. That’s not good enough. In fact, profit growth hasn’t been good all year — even Estimates don’t look great.
Furthermore, ILMN’s Estimated Long Term Growth Rate is 19%. That’s also good but not great. I feel this stock ran up too far too fast.
Fair Value
I think Illumina’s P/E should be more like 35. The median P/E in 2012 was 17, in 2011 it was 16 and the two years prior to that it was 13. So I’m being very generous with the 35 P/E. Still, the stock is way too high. I see ILMN being worth $76.
Sharek’s Take
Illumina’s story has attracted a lot of new eyes to the stock. That’s pushed the stock price so high I can’t touch it here. I’ll keep ILMN on my radar, but it will have to go through a massive correction to get me to buy in.
View the Earnings Table here. View the Profit History here. View the Ten Year Chart here.
