The last time we wrote about biotech device and services provider Illumina was in August, 2022. The stock was trading near $208 a share, down more than 60% from its 2021 record high. While the bulls might have thought that Illumina must be a bargain after such a big crash, Elliott Wave analysis led us to the conclusion that it can fall by another 50%, before finding bottom.
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The reason for our pessimism was the daily chart above, which revealed an (a)-(b)-(c) expanding flat correction, whose wave (c) was far from over. It was supposed to evolve into a five-wave impulse and it looked like a sequence of fourth and fifth waves had just begun. Therefore, it made sense to expect more weakness towards $100 before the pattern is complete.
Fast-forward to today, the stock is down to roughly $80 per share, reducing Illumina’s market cap by another 60% since we last examined it. On top of that, China just announced it is banning the imports of the company’s products in retaliation for Donald Trump’s new tariffs.
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On the bright side, the company’s fundamentals have been improving. It re-divested its ill-thought out re-acquisition of GRAIL and seems well positioned for slow, but profitable sales growth going forward. Operating margins have been expanding and management is confident it can continue to improve Illumina’s cost profile. Does this make the stock a good investment, however, especially in the face of Trump’s new trade war? Let’s ask Elliott Wave again.
The impulse pattern in wave (c) seems to be on the verge of completion. Wave (iv) of 3 took the shape of a triangle correction, while wave 4 was a simple a-b-c zigzag. If this count is correct, the fifth and final is now under construction. Given the bigger picture, we can expect a notable recovery to begin as soon as it is over. That being said, the stock is likely to remain under pressure short-term.
Sales are still not growing quickly enough to justify Illumina’s forward P/E ratio of 19 and trade tensions are likely to persist in the foreseeable future. More downside to under $50 a share makes sense before we can assign the stock a ‘buy’ rating.
