What: Shares of DNA sequencer Pacific Biosciences of California (NASDAQ:PACB) were off to the races once again today. The company's stock was up more than 18% today in late afternoon trading on much heavier than normal volume.
So what: There doesn't appear to be any particular reason for the strong price movement today, but one thing is for sure -- Pacific's shares have been on tear recently and are now up more than 100% in the last 3 months alone.
Investors appear to have turned quite bullish on Pacific's stock ever since the company announced in late September that it would be launching its next generation nucleic acid sequencing platform, which is called "The Sequel System". This new system promises several key advantages over the previous system, such as a smaller overall footprint and lower sequencing project costs, that the company believes will help it compete more effectively in the market.
Many short traders are likely in a rush to cover their positions after such a run-up, which is creating a short squeeze and driving up share price. As of October 30th, more than 14 million shares of Pacific had been sold short, which is roughly 30% of all the publicly available shares. With the stock at a 52-week high, all of those traders are currently staring at a huge loss.
Now what: Regardless of the stock's short term movement, the real question that should matter to long term investors is how well this new system will sell in the market place. Pacific has long played second fiddle to Illumina (NASDAQ:ILMN), the dominant player in DNA sequencing. Pacific's prior system simply didn't compete well against Illumina's less expensive offerings. It will be interesting to see if the new system, which promises a substantially reduced price, can finally wrestle a meaningful amount of market share away from Illumina.
If Pacific's new sequel system is able to deliver on its promises, then it looks to me like there's more room for the stock to climb higher from here.
Brian Feroldi has no position in any stocks mentioned. The Motley Fool recommends Illumina and Pacific Biosciences of California. 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.