What: Shares of Pacific Biosciences of California (NASDAQ:PACB), a developer of complex machines capable of analyzing human DNA sequences, surged by 34% in October, based on data from S&P Capital IQ, following the company's better than expected third-quarter earnings report, as well as the sizable rebound for the overall market from its recent lows.
So what: Perhaps the biggest stock price driver for the month was Pacific Biosciences' third-quarter report issued on Oct. 23. For the quarter the company produced $20.6 million in revenue, a 178% increase from the $7.4 million reported at this time last year, as its net loss was more than halved to $9.2 million, or $0.13 per share, from the $20.5 million reported last year. Comparatively speaking, Wall Street had been expecting a wider loss per share of $0.16.
The second quarter also included a $10 million milestone payment from Roche (NASDAQOTH:RHHBY), along with $1.7 million in amortized revenue based on its agreement to deliver six PacBio RS II systems. Additionally, the company reported a quarter-end backlog of 20 PacBio RS II systems, while booking 16 systems during the quarter.
The other factor boosting shares was a favorable rebound in the overall market. Pacific Biosciences is a rather volatile stock, with a beta of 1.57. The implication here is that it's 57% more volatile, on average, than the S&P 500; so the large S&P 500 move higher was even more amplified by Pacific Biosciences.
Another point investors may not want to overlook is that a rallying market implies a positive growth outlook for the economy. Pacific Biosciences machines aren't cheap, so they sort of require a stable market in order to ensure sales growth. The rally in the S&P 500 is sending all the right signals to Pacific Biosciences shareholders that this growth appears safe for the time being.
Now what: Moving forward Pacific Biosciences of California is certainly a company I'd suggest having on your radar. The need for genetic analysis is only expected to grow in the coming decade as medicine becomes more personalized, especially when it comes to fighting cancer. As costs for analysis have come down dramatically over the past decade, the ability for more universities, physicians, and even consumers to utilize these tools has increased. In short, I don't think it's out of the question to expect PacBio's revenue to continue climbing.
However, I would suggest investors exercise caution because orders for these devices can be lumpy at times. The company isn't at the point yet where it can absorb notoriously bad quarters without its share price swooning, so investors now are likely in for a bit of a wild ride. Also, it could be years before PacBio turns profitable, so it might be best to keep your expectations for any major rally tempered in the meantime.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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