For years, satirical late-night TV host Stephen Colbert has been running a series on his show called "Better Know a District," which highlights one of the 435 U.S. districts and its congressional representative. While I am no Stephen Colbert, I am brutally inquisitive when it comes to the 5,000-plus listed companies on the U.S. stock exchanges.
That's why this week and every week from here on out, I'll make it a tradition to examine one seldom-followed company within the Motley Fool CAPS database and make a CAPScall of outperform or underperform on that company.
For this week's round of what I like to call "Better Know a Stock," I'd like to take a closer look at Complete Genomics
What Complete Genomics does
Complete Genomics is a life sciences company developing DNA sequencing technology to quickly and cost-effectively analyze DNA data. The main buzz surrounding Complete Genomics is its announcement that it has developed new genome sequencing technology, known as Long Fragment Read, which is significantly more accurate than what's currently available on the market and requires less DNA for analysis. Genome sequencers are vital to researchers as they allow for quicker turnaround times in studies. Also, as genome sequencing costs fall, research studies become cheaper and more feasible to run.
In Complete Genomics' latest quarter, the company noted revenue of $3.9 million, down from $6.8 million in the previous year, while expenses ballooned due to DNA sequencing technology development.
Whom it competes against
As you can imagine, competition among life sciences companies is fierce. Illumina
Also, Life Technologies'
In short, Complete Genomics competes as much against its competitors' lawyers as it does against their innovation.
After reviewing Complete Genomics' prospects, I've decided to make a CAPScall of underperform on the company.
In spite of Complete Genomics' new LFR technology, I'm concerned the company is quickly running out of cash. Complete ended its latest quarter with just $63.1 million in cash ($40.2 million net cash), and an increasing cash burn rate ($36 million in 2008, $54 million in 2009, $71 million in 2010, and $78 million over the last 12 months) that shows no sign of letting up. That leaves Complete with few options other than to sell itself on the cheap, sell the rights to its new technology to raise cash, or dilute the daylights out of its current shareholders. There's also no guarantee, even if it does issue a dilutive share offering, that its technology will be widely accepted or effectively be able to compete against Illumina and Life Technologies, which have much larger partners and deeper pockets. With the company cutting 55 of its 255 jobs and delaying its expansion, I think that's all the incentive I need to rate this stock as underperform.
You can follow this selection, as well as all previous CAPScalls I've made, by clicking here to be immediately whisked away to my CAPS portfolio.
Although Complete Genomics doesn't exactly fit the bill of a company you can retire on, our Motley Fool think tank of analysts does have three companies in mind. Click here to get our latest special free report and find out which three stocks could have you sleeping better at night.