Should you record profits in Pacific Biosciences in California after a massive 13-fold rally?

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After a sharp 13-fold increase from levels on March 23 of last year, at the current price of around $ 36 per share, we believe California Pacific Biosciences Stock (NASDAQ

NDAQ
: PACB), a biotechnology company developing gene sequencing systems, has reached its short-term potential. PACB stock rose from $ 3 to $ 36, significantly outperforming the S&P which rose 70% over the same period, with economic activities resuming as lockdowns are gradually lifted and vaccines are approved in many countries. The outperformance of PACB can be attributed to its sequencing for the coronavirus genome. PACB stock is also up 420 times from the $ 7 levels seen in early 2019, two years ago.

Most of the 13x increase over the past 2 years can be attributed to the expansion of its P / S multiple. When it comes to fundamentals, the company’s total revenue only grew by 0.2% between 2018 and 2020. The company’s total number of shares outstanding increased by 17% from 135 million in 2018 to 158 million in 2020, due to share issues, resulting in a 14% drop in revenues. per share to $ 0.50 in 2020, up from $ 0.58 in 2018. We believe the stock has rallied significantly and should see a decline after the recent rise. Our dashboard, ‘What factors caused a 420% change in the Pacific biosciences of the California stock between late 2018 and now?, has the underlying numbers.

So what is the likely trigger and timing of the decline?

Pacific Biosciences

PACB
The key product of s is its Sequel System, a nucleic acid sequencing platform based on real-time single-molecule sequencing technology. The company has focused on increasing its installed base, which currently stands at 203 (as of December 2020). 35 of 203 systems were installed just in the fourth quarter of 2020. With more systems installed, the business can expect recurring consumables revenue going forward. There are also other companies, including Illumina

ILMN
, which offer DNA sequencing platforms, and Pacific Biosciences faces stiff competition in the market.

Pacific Biosciences recently launched its advanced version of Sequel for greater accuracy, which will likely help increase its installed base in the future. While the company’s revenue was actually down 13% year-on-year in 2020, sales are expected to grow 68% to $ 129 million in 2021, due to an increase in the total number of system placements. . That said, the recent growth in the stock price means that some of the positives are already valued at the current price of $ 36. Based on the consensus revenue estimate of $ 129 million in 2021, PACB stock is trading at 44 times its RPS of $ 0.82, which compares to the 13x and 9x levels seen in 2018 and 2019, respectively, which which implies that the stock is vulnerable to downside risk.

Although the PACB stock may be overvalued, 2020 has created many price discontinuities that can provide some exciting trading opportunities. For example, you will be surprised at how counterintuitive stock valuation is for Pfizer vs. Merck.

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