1 Huge Reason to Buy Illumina, Inc. Stock Now

Illumina (NASDAQ: ILMN) appears to be getting its groove back.

The genomic-sequencing company's stock skyrocketed from 2012 through mid-2015. And then it didn't. Beginning in July 2015 and extending throughout most of last year, Illumina fumbled, flopped, and floundered.

Now, however, Illumina looks to again be a stock for investors to seriously consider buying. There's one huge reason why.

Image source: Getty Images.

Something new

Why take another look at Illumina? Because the company now has something new: NovaSeq.

Illumina first announced the launch of its new genomic-sequencing system in early January. The impact of NovaSeq should be significant. Illumina CEO FrancisdeSouza wasn't just spinning a new product when he said that the introduction of the new platform "marks oneof the most important inflection points of innovation in Illumina's history."

NovaSeq is the most powerful system ever sold by Illumina. It enablessequencing more samples at greater depth. And it should lead to lower costs for mapping genomes. Illumina has hit the trifecta of faster, better, and cheaper.

The company expects around most of its 800 active HiSeq customers to convert to NovaSeq in the next three to five years. That means increased system sales revenue is on the way for Illumina. It also seems highly probable that the company will pick up new customers along the way, some from competitors.

Illumina also plans to roll out a higher-end version of NovaSeq with an S4 chip. This system is expected to attract customers that currently use the company's high-throughput HiSeq X sequencing systems.

Other positives

While the potential for NovaSeq is the big reason to consider buying Illumina stock, the company has other things going for it. I'd put its recurring revenue at the top of that list. Consumables account for nearly two-thirds of Illumina's total revenue.

Illumina's financial results have been weighed down a bit in the past by its funding of operations for GRAIL, a venture formed by the company to develop a DNA test for early detection of multiple forms of cancer. However, GRAIL recently bought back a large portion of Illumina's stake. As a result, Illumina won't report GRAIL operations in its financial statements going forward. Illumina still owns part of GRAIL, though, and stands to benefit if the newer company is successful.

China presents a significant opportunity for Illumina. In 2016, the country announceda 15-year precision medicine initiative and stated that it intended to become a leading superpower in precision medicine. Because precision medicine requires analysis of individuals' DNA, Illumina is poised to profit from China's ascendance.

Realistic expectations

While Illumina appears likely to succeed in the coming years, investors need to keep in mind that this success won't happen overnight. Illumina's chief administrative officer, Marc Stapley, recently discussed some of the challenges the company faces at the Cowen & Company Annual Healthcare Conference.

As promising as NovaSeq is, Stapley acknowledged that some customers will need to be convinced about the merits of the new technology. In particular, he said that Illumina would have to educate customers about the two-channel chemistry used in NovaSeq. He stated that implementing a new system into customers' workflow is "not trivial."

Stapley also pointed out some of the supply chain constraints involved with the launch of NovaSeq. The supply chain is more complex than with Illumina's other systems. However, Stapley noted that the company's supply chain expertise has also improved significantly in recent years.

It sounds like 2017 will be a transitional year for Illumina. The company continues to train its services team to implement and maintain NovaSeq systems. It's working to ramp up a complicated supply chain. However, Illumina should begin reaping the rewards of the new system later in 2017 with great opportunities over the next several years.

Investors shouldn't expect Illumina's share price to soar like it did earlier this decade. But the company is clearly putting some of the problems experienced last year behind it. Illumina is once again a stock to watch.

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Keith Speights has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Illumina. The Motley Fool has a disclosure policy.