Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is Illumina Inc (ILMN, Financial). The stock, which is currently priced at $161.2, recorded a loss of 4.31% in a day and a 3-month decrease of 23.3%. The stock's fair valuation is $337.35, as indicated by its GF Value.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
We believe the GF Value Line is the fair value that the stock should be traded at. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
Scrutinizing the Risks
However, investors need to consider a more in-depth analysis before making an investment decision. Despite its seemingly attractive valuation, certain risk factors associated with Illumina (ILMN, Financial) should not be ignored. These risks are primarily reflected through its low Piotroski F-score and high Beneish M-score. These indicators suggest that Illumina, despite its apparent undervaluation, might be a potential value trap. This complexity underlines the importance of thorough due diligence in investment decision-making.
Company Overview
Illumina provides tools and services to analyze genetic material with life science and clinical lab applications. The company generates over 90% of its revenue from sequencing instruments, consumables, and services. Illumina's high-throughput technology enables whole genome sequencing in humans and other large organisms. Its lower throughput tools enable applications that require smaller data outputs, such as viral and cancer tumor screening. Illumina also sells microarrays (less than 10% of sales) that enable lower-cost, focused genetic screening with primarily consumer and agricultural applications.
Despite the promising fair value of $337.35, Illumina's stock is currently priced at $161.2. This discrepancy, coupled with the company's low Piotroski F-score and high Beneish M-score, warrants a cautious approach.
Conclusion
In conclusion, while Illumina (ILMN, Financial) appears to be undervalued at first glance, the potential risks associated with the stock suggest that it might be a value trap. The low Piotroski F-score and high Beneish M-score are red flags that investors should not ignore. Therefore, a prudent approach would be to conduct thorough due diligence before making an investment decision.
