Since our October 6, 2015 posting about Illumina Inc. (ILMN), the stock has continued in an overall declining trend as outlined in the chart below.
When we speak of an overall declining trend, we’re referencing the fact that ILMN has been unable to exceed the peaks since the high in the price at $242. The conclusion of this pattern should be revealed when the stock price exceeds the general declining trend or falls outside of the red rectangle. The convergence of the general declining trend and the top of the red box will likely merge which will coincide and confirm a breakout above the declining trend, if it were to occur.
According to Value Line Investment Survey dated May 20, 2016, ILMN is fairly valued at $146 based on estimated 2016 cash flow and valued at $182 based on 2017 estimated cash flow. Previous tracking of ILMN suggests that the stock can trade as low as 30% below Value Line’s estimated fair value. However, this estimate of downside decline generally applies if you want to catch the “bottom”. Problem is, we’ve never been able to reliably predict the low.
One point worth making, is that whenever the price of ILMN achieved fair value, where it is currently, the stock managed to have substantial gains…after suffering painful losses initially. We’re of the perspective that only long-term investors consider ILMN with an acceptance of the downside risk that is possibly yet to come.