Illumina stock (NASDAQ: ILMN) and its industry rival, Thermo Fisher Scientific stock (NYSE: TMO), are both promising options for investors. While ILMN trades at a higher valuation compared to TMO, it enjoys a better debt position and cash cushion. However, Thermo Fisher Scientific has demonstrated better revenue growth and is more profitable. Let’s dive deeper into each company’s performance below:
1. Revenue Growth:
- Thermo Fisher Scientific has seen much better revenue growth, with a 20.8% average annual growth rate in the last three years compared to 10.8% for Illumina.
- Illumina’s sales have risen thanks to a growing demand for gene sequencing. Its cancer screening and population genomics testing are also driving its revenue growth. Illumina also benefits from the gains made via Covid-19 surveillance programs.
- Thermo Fisher Scientific manufactures analytical laboratory instruments, which have seen increased demand during the pandemic.
- Thermo Fisher Scientific had a significant 51% YoY growth owing to the acquisition of PPD Inc. in December 2021, which contributed $7.1 billion to its top line in 2022.
2. Profitability and Risk:
- Thermo Fisher Scientific is more profitable, with a better operating margin and free cash flow margin than Illumina.
- Illumina’s operating margin has declined sharply from 29.3% to -90.6% in 2022 due to a goodwill impairment charge and legal contingency related to the Grail acquisition.
- Illumina has a better debt position and cash cushion compared to Thermo Fisher Scientific.
3. Valuation:
- Thermo Fisher Scientific has a lower valuation multiple than Illumina based on P/S ratios.
- Illumina’s stock is currently trading at 7.1x trailing revenues versus the last five-year average of 15.0x. On the other hand, Thermo Fisher Scientific’s stock trades at 4.6x trailing revenues versus the last five-year average of 5.9x.
The Bottom Line:
- Both Illumina and Thermo Fisher Scientific stocks are good buying opportunities and will likely offer similar returns in the next three years.
- Thermo Fisher Scientific has demonstrated better revenue growth, is more profitable, and is available at a comparatively lower valuation multiple than Illumina.
- Even though Illumina has a better debt position and cash cushion, Thermo Fisher Scientific is deemed the better investment option at present given its overall performance.
While both ILMN and TMO offer promising returns, investors should note that the ongoing Covid-19 pandemic may create pricing discontinuities that could lead to interesting trading opportunities.
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