Shares of Life Technologies (NASDAQ: LIFE) hit a 52-week high last week. Let's look at what's behind this stock's recent movements to try to better understand what might happen in its future.
How it got here
It's been a year of divergence for genomics companies. The sector's two leading lights, Life Tech and Illumina (ILMN +0.20%), have both posted solid gains in the past 52 weeks, while Sequenom and Complete Genomics (NASDAQ: GNOM) have slipped. Pacific Biosciences (PACB +0.00%), after jumping earlier this year on buyout rumors driven by Illumina's hostile-takeover battle, has slipped to join the second-stringers with deep losses:
LIFE Total Return Price data by YCharts.
Life Tech's had more stable gains than Illumina, and it has been buoyed lately by a string of good news. The company started shipping its Ion Proton sequencers last month, making good on the promise of sequencing an entire human genome for just $1,000. More than 100 Ion Protons had been readied for the initial shipment, and Life Tech reported strong demand for the new machines in its announcement.
Life Tech also announced several partnerships in September, including one with Bristol-Myers Squibb (BMY +2.69%) to develop companion diagnostics for more personalized medicines; one with biotech start-up Pathogenica to market hospital-infection detection kits; and one with genomic analysis start-up CollabRx to commercialize cancer-diagnostics sequencing. It also launched advanced DNA-testing kits for criminal forensics labs and opened a Chinese manufacturing facility to produce those kits.
September was indeed a busy month, and October has started off with a bang as well. Life Tech just announced the acquisition of Compendia Bioscience this week. The deal further extends Life Tech's cancer screening capabilities and also enhances the company's personalized-medicine efforts.
Do all these moves portend greater gains, or are investors bidding up shares more on hope than on hard data? Let's dig into the numbers of Life Tech and its peers to find out.
Although Life Tech's stock isn't the cheapest on the market, it appears by far the most reasonably priced in its sector. The company has maintained a much lower P/E than Illumina thanks in part to a better net margin, and its forward growth expectations, though not eye-popping, are respectable, especially in light of anemic expectations for some of its competitors:
|
Company |
P/E Ratio |
Price to Levered Free Cash Flow |
Net Margin (TTM) |
Projected Growth Rate (2013) |
|---|---|---|---|---|
|
Life Technologies |
20.8 |
17.4 |
11.6% |
8.9% |
|
Illumina |
84.4 |
24.0 |
7.8% |
12.7% |
|
Sequenom |
NM |
NM |
(152%) |
41.5% |
|
Complete Genomics |
NM |
NM |
(431.1%) |
6.7% |
|
Pacific Biosciences |
NM |
NM |
(253.6%) |
4.6% |
Source: Yahoo! Finance. NM = not material due to negative results.
The Ion Proton machines discussed earlier are going to be major focal points of investor interest going forward. Affordable genome sequencing opens up a host of medical possibilities that have never before been possible, and at $1,000 per genome, Life Tech's machines pose serious competition to industry leader Illumina -- if its sequences are accurate enough.
Life Tech has competition on multiple genome-sequencing fronts, including small-scale portable machines from genomics start-ups, as well as Illumina's and Pacific Biosciences' machines. Obamacare could be both bane and boon to the entire sector over time, as my fellow Fool Sean Williams noted after the Supreme Court upheld the law. I'm more of the opinion that wider health coverage, combined with plummeting sequencing costs, could create an investing bubble not unlike that of the dot-com era, as software developers work with drugmakers to unlock, understand, and exploit the mysteries of the genome. Life Tech has the largest R&D budget in the sector, which is no small advantage in this high-speed race for better, cheaper, faster sequencing.
What's next?
Investors needn't worry that Life Tech is bubbling up to stratospheric valuations. The company's P/E is below its two-year average, and a strong third and fourth quarter could easily push that number below 20 and into "screaming buy" territory, even as the stock continues to rise. The Motley Fool's CAPS community thinks highly of Life Technologies, granting it a perfect five-star rating. Only 4% of our CAPS players expect the company to underperform in the future.
