Illumina shares fell by -2.8% during the day's afternoon session, and are now trading at a price of $175.47. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly in terms of its earnings and equity levels.
Illumina's Valuation Is in Line With Its Sector Averages:
Illumina, Inc. develops, manufactures, and markets life science tools and integrated systems for large-scale analysis of genetic variation and function. The company belongs to the Health Care sector, which has an average price to earnings (P/E) ratio of 24.45 and an average price to book (P/B) ratio of 4.16. In contrast, Illumina has a trailing 12 month P/E ratio of -6.1 and a P/B ratio of 4.23.
When we divide Illumina's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -27.89. Since it's negative, the company has negative growth expectations, and most investors will probably avoid the stock unless it has an exceptionally low P/E and P/B ratio.
Increasing Revenues but Narrowing Margins:
| 2019-12-31 | 2020-12-31 | 2021-12-31 | 2022-12-31 | |
|---|---|---|---|---|
| Revenue (MM) | $3,543 | $3,239 | $4,526 | $4,584 |
| Gross Margins | 69.6% | 68.0% | 69.7% | 64.8% |
| Operating Margins | 27.8% | 17.9% | -2.7% | 7.7% |
| Net Margins | 28.28% | 20.25% | 16.84% | -96.07% |
| Net Income (MM) | $1,002 | $656 | $762 | -$4,404 |
| Net Interest Expense (MM) | $23 | -$8 | -$61 | -$15 |
| Depreciation & Amort. (MM) | -$188 | -$187 | -$251 | -$394 |
| Earnings Per Share | $6.74 | $4.45 | $5.04 | -$28.81 |
| EPS Growth | n/a | -33.98% | 13.26% | -671.63% |
| Diluted Shares (MM) | 149 | 148 | 151 | 158 |
| Free Cash Flow (MM) | $1,051 | $1,080 | $545 | $392 |
| Capital Expenditures (MM) | -$209 | -$189 | -$208 | -$466 |
| Net Current Assets (MM) | $1,748 | $1,592 | -$1,764 | -$2,092 |
| Current Ratio | 6.69 | 3.6 | 2.48 | 1.28 |
| Long Term Debt (MM) | $1,141 | $673 | $1,695 | $1,487 |
| LT Debt to Equity | 0.25 | 0.14 | 0.16 | 0.23 |
Illumina has growing revenues and increasing reinvestment in the business and healthy debt levels. Additionally, the company's financial statements display wider gross margins than its peer group and consistent free cash flow. However, the firm has declining EPS growth. Finally, we note that Illumina has average net margins with a negative growth trend and just enough current assets to cover current liabilities.
