While it's far from a household name, Illumina (NASDAQ:ILMN) is often the first word in the red-hot field of genomic sequencing. Illumina has been a strong stock since it went public 14 years ago, rewarding shareholders with lifetime returns of over 750%.

ILMN Chart

ILMN data by YCharts

Ilmnlogo

Source: Wikimedia Commons.

What's left after such gains? Illumina's stock has handily beaten the S&P 500 (SNPINDEX:^GSPC) over the past year, the past five years, and the past decade, which should give investors a good sense of its ability to continue doing so in the future. But we don't want to know if Illumina can continue putting together market-beating returns. We want to know why that might happen. Let's take a look at three of the biggest factors in Illumina's favor going forward to better understand the potential for continued share-price (and business) growth.

Genome sequencing is following a classic Moore's Law progression
Moore's law, in its simplest form, implies that the number of transistors on a microchip grow at an exponential rate. For example, if there are two transistors on a chip today, there will be four next year, eight the year after, and within 20 years there will be more than a million transistors on a chip that once held only two. At the same time, manufacturing improvements make each transistor exponentially cheaper -- those million transistors will cost less than two do today.

The same has been true in genome sequencing, and Illumina has been at the forefront of the technological improvements driving the market forward. This is easily seen in data provided by the National Human Genome Research Institute, which has tracked the cost to sequence an entire genome from the earliest commercial sequencing to the present day:

Cost
Source: National Human Genome Research Institute.

A decade ago, it cost more than $20 million to sequence an entire genome, and the entire domestic genomics sector, including all related products and services as well as sequencing itself, generated roughly $6 billion in revenue. Today, it costs less than $5,000 to sequence an entire genome -- a 99.98% drop in price -- and Illumina alone generates $1.6 billion in revenue and is estimated to account for three-quarters of the next-generation sequencing market, out of more than $11 billion in overall genomics-related revenue. Most accounts expect genomics-sector revenues to post double-digit percentage growth for years to come, but this may even underestimate the potential size of the market as the cost of sequencing continues to march toward true affordability.

When Gordon Moore devised his "law" in 1965, he was prescient enough to see the possibility of computer chips in cars and "personal portable communications equipment" -- perhaps something akin to the smartphones more than a billion people own today. And yet he overlooked the explosive, transformative potential of these breakthroughs by predicting instead that "the biggest potential [would lie] in the production of large systems," like telephone networks, rather than in the billions and billions of affordable computing systems in the world's homes and offices. Even when brilliant minds look to the future of technology, they often underestimate just how different it will be from that of the present day, and how much more valuable that difference will be to companies -- like Moore's Intel (NASDAQ:INTC) -- that develop the technology making that difference possible.

It would take a separate article, if not an entire book, to adequately explore the economic potential unlocked by a truly affordable genome-sequencing process. For now, keep in mind that genome sequencing hasn't reached consumer level pricing yet. Moore's Law made billionaires out of innovators once integrated circuits were small and efficient enough to operate a wide range of consumer products. What might happen once we can go to the doctor's office and get our entire genome sequenced as part of our regular checkups?

Illumina has a dominant position in its industry
Illumina controls roughly three-quarters of the next-gen genome sequencing market. We've already compared genome sequencing to semiconductors, and the two industries could have more in common than exponential improvement.

The companies that raced to early technological leads in their respective sectors -- Intel in semiconductors and Illumina in sequencing -- wound up dominating those sectors for years afterwards. Intel launched the world's first true microprocessor in 1971, but it took another decade before the company seized a commanding lead in semiconductors thanks to its critical role in the first PC's easily copied architecture. Intel is still the world leader in PC chips today, more than three decades after the PC's introduction, which is due in no small part to its ferocious drive to produce the most powerful chips with the smallest possible transistors before anyone else.

Illumina has similarly held a commanding lead in next-gen sequencing systems ever since the launch of its first next-gen systems in the latter half of the last decade. While other next-gen sequencers were earlier to the market -- Roche (NASDAQOTH:RHHBY) launched the first such device in 2004 -- Illumina has for years produced the machines with the highest throughput per sequencing run while also hitting the highest marks for sequencing accuracy, which are two key considerations for medical professionals who need to sequence genomes on a regular basis. There's no guarantee that Illumina will always be the top dog in sequencing -- Intel has yet to crack the mobile market, despite dominating PCs for decades -- but at the moment, no one else comes close.

Illumina has a strong commitment to R&D
Research and development is a vital expense in fast-moving, bleeding-edge fields like genomics, and Illumina has sustained its R&D spending for years. Over the past half-decade, the company has more than doubled its R&D spending, and this increase is right in line with the growth of its EPS:

ILMN Research and Development Expense (TTM) Chart

ILMN Research and Development Expense (TTM) data by YCharts

Not only has Illumina kept its R&D spending at roughly the same level relative to its revenues over the past five years, it's also sustained a stronger commitment to R&D than any of its major competitors, with the possible exception of the much smaller Luminex (NASDAQ: LMNX):

ILMN R&D to Revenue (TTM) Chart

ILMN R&D to Revenue (TTM) data by YCharts

Illumina's closest competitor, Thermo Fisher Scientific (NYSE:TMO), which bought rival sequencer producer Life Technologies last year, spends more on R&D in nominal terms, but far less as a percentage of its revenue. Neither Thermo Fisher as a whole nor Life Technologies is as laser-focused on genomic sequencing as Illumina, which means that only a portion of the combined company's overall R&D spending will be directed toward genomics technology. Thermo Fisher's R&D expense is barely a fifth as large as Illumina's relative to each company's overall revenue, and in its last annual filing as an independent company, Life Technologies recorded an R&D-to-revenue ratio of 10%. This would be strong for most high-tech businesses, and yet it's still only half as large as Illumina's ratio.

It will take years before genome sequencing becomes affordable and commonplace, but Illumina's industry-leading commitment to R&D makes it the most likely candidate to achieve that dream.

Three good reasons?
Illumina is hitting all the right targets for growth-focused investors looking to buy into a huge opportunity. The road to dominance is paved with the corpses of companies that started too soon, too late, or too focused on the wrong things, but Illumina's thus far avoided those pitfalls to carve out a seemingly secure space for itself in genomics. Will it be the leader in this exciting industry over the long term? The reasons we've explored here show that it has a good shot, but there are many years to go before Illumina is spoken of in the same breath as Intel and other huge high-tech leaders that rode waves of innovation to long-term corporate success.

Alex Planes owns shares of Intel. The Motley Fool recommends Illumina, Intel, and Thermo Fisher Scientific. The Motley Fool owns shares of Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.