Biotech company 10x Genomics (TXG -6.27%) manufactures equipment that helps researchers better analyze how a single cell functions and interacts with another single cell. Think of the company's technology like gracefully peeling back the layers of an onion, one layer at a time -- a big improvement over previous processes, in which scientists essentially had to smash the "onion" against a wall to see what was inside. 

The level of elegant detail and in-depth characterization allowed by 10x Genomics's technology had not been available before, and early investors have been well rewarded -- the company's stock price has already tripled since its September 2019 IPO. But there could be much more to come.

Don't take my word for it

Scientists worldwide are drooling over the company's technology; its equipment is in use by all 100 of the top global research institutions and all 20 of the top global pharmaceutical companies, with over 2,400 of its instruments in play overall. Not only that, but its products have been mentioned in more than 2,250 research papers across multiple fields of scientific research. Bottom line, the company's razor-and-blade equipment model has quickly become deeply woven into the scientific community. A company hasn't taken the industry by storm like this since Illumina's (ILMN -2.86%) DNA sequencing platforms in the early 2000s.

Image Source: Getty Images.

Image Source: Getty Images.

Quality isn't cheap

Make no mistake, 10x Genomics is expensive compared with 2007 Illumina. The former company recently announced $298.8 million in fiscal 2020 revenue, marking an increase of 22% over fiscal 2019 and a 49% increase between 4Q 2019 and 4Q 2020 -- and it managed this with many labs shut down due to COVID-19. Illumina first posted $300 million in annual revenue back in 2007, at which point revenue was just about doubling year over year.

Back then, Illumina's profit margins were in the low- to mid-60s (and they still are); 10x Genomics today has margins of about 80%. And thanks to the stranglehold it has maintained on gene sequencing, Illumina has rewarded investors with a 26-bagger, going from $15 a share in April 2007 to about $400 a share today. That means Illumina's $3.2 billion in fiscal 2020 revenue is more than 10 times that of 10x Genomics. Yet the former's $58 billion market cap is only about 3 times 10x Genomics' $18 billion.

In other words, it's certainly not cheap at a price-to-sales ratio of about 55. But management at 10x Genomics believes the immediate addressable market to analyze cell-cell interactions is $15 billion; they also have plans for further offerings and expansion into global life science research tools, which they think could add another $60 billion to that. If 10x Genomics can capture 20% of this total $75 billion addressable market at a P/S ratio of 25, that would make it a shade over a 20-bagger from here -- within reach of Illumina and its market-dominating 25-bagger performance since 2007. Remember, 10x is just getting started and still expanding its offerings, and management is projecting $500 million in revenue for fiscal 2021 -- that's 67% growth.

The customer is always right

This past year has been a time of scientific innovation, and I have to believe this momentum will continue; with a multitude of new offerings in the pipeline, 10x Genomics is in the right place at the right time. And it's nothing if not responsive -- on March 10, 2020, the company posted a webinar explaining how 10x Genomics could help with COVID-19 and asked on its website for researchers to help fight the virus.

10x Genomics recently offered Xperience 2021, a conference highlighting case studies using the company's instruments and platform, with attendees encouraged to dream big and collaborate. This is a common thread among industry leaders in other areas; MongoDB (MDB 0.76%) has MongoWorld, Zoom (ZM -1.59%) offers Zoomtopia, and (CRM 1.65%) has Dreamforce. Each of these companies crowdsources ideas from their users at their respective conferences, and 10x Genomics is no different.

This first Xperience drew rave reviews from its researcher attendees from around the globe. This customer-centric approach will surely fuel future growth and build brand loyalty. Further demonstrating a customer-first model, the company even posts customer-developed protocols on its website. 10x's strong ties to researchers both in and out of academia, its first-mover advantage, the lack of legitimate competition, and its dedication to innovation are, again, reminiscent of the early days of Illumina in the early to mid-2000s.

10x Genomics has customer-first focus, a huge head start, blustering tailwinds, and zero competition, all of which make its high price tag warranted. Biotech investors hungry for a potential 10-bagger -- or more -- may want to look more closely at 10x Genomics.