Why Pacific Biosciences of California Shares Cratered

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Pacific Biosciences of California (NASDAQ: PACB  ) have lost 11% of their value today despite the company's reasonable earnings report. Investors were disappointed by the company's guidance for 2014, which was weaker than expected.

So what: Pacific Biosciences reported a 54% year-over-year rise in revenue to $8.1 million, which was in line with Wall Street's consensus. The company's steep $0.26 loss per share was actually better than Wall Street's consensus by a penny.

Pacific Biosciences also provided some guidance for the upcoming fiscal year. Revenue is expected to rise at least 55% year over year, which would be $43.7 million as compared with 2013's full-year result of $28.2 million. With gross margin guidance falling in the 25% to 30% range and an expectation of $84 million in total operating expenses, investors can probably expect a loss of at least $1.09 per share for the year. Both numbers were worse than Wall Street's consensus, which called for $45.4 million in revenue and a loss of $1.04 per share for 2014.

Now what: When is Pacific Biosciences going to be profitable? This is a company that's never come remotely close to turning a profit and has never shown the slightest ability to generate positive cash flow. While the stock's tripled in the past year, it remains about 60% lower than where it was five years ago, and with good reason. There's no reason investors should be long-term optimistic about a company which seems to only be in the business of repeatedly throwing money into a garbage disposal, especially when other companies in the same field have been profitable for years.

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