Will Illumina Stock Rebound After A 6% Fall Last Week?

The stock price of Illumina, a gene sequencing company, reached an all-time high of $524 earlier this month before a recent sell-off drove the stock price down 6% to its current level of around $487. ILMN stock has fallen 6% over the last five days, after the company announced the completion of its acquisition of Grail – a cancer testing company – for $8 billion. The acquisition was first announced in September 2020. But the recent announcement of completion of the acquisition took many by surprise given that the European Commission is still reviewing the transaction over monopoly concerns. Although Illumina’s management has stated that the EU doesn’t have any jurisdiction to review this merger since Grail does not operate in the EU, the acquisition announcement didn’t sit well with the investors. But will ILMN stock continue its downward trajectory over the coming weeks, or is a recovery in the stock imminent?

According to the Trefis Machine Learning Engine, which identifies trends in the company’s stock price using ten years of historical data, returns for ILMN stock average around 3% in the next one-month (twenty-one trading days) period after experiencing a 6% drop over the previous week (five trading days).

However, despite the historical trends suggesting otherwise, we believe that ILMN stock is best avoided in the near term. It has already rallied over 30% so far this year, and depending on the outcome of the EU review, it may not end well for Illumina. EU can impose a hefty fine for not securing the approval before the acquisition. Furthermore, the U.S. Federal Trade Commission has also raised concerns over this deal, and it is also reviewing the transaction. [1] And to top it off, irrespective of the outcomes of the reviews, Illumina will see a major dilution in its equity with this acquisition.

But how would the returns fare if you are interested in holding Illumina stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning Engine to test Illumina stock chances of a rise after a fall. You can test the chance of recovery over different time intervals of a quarter, month, or even just 1 day!

MACHINE LEARNING ENGINE – try it yourself:

IF ILMN stock moved by -5% over five trading days, THEN over the next twenty-one trading days ILMN stock moves an average of 3%, with a 60.5% probability of a positive return over this period.


Some Fun Scenarios, FAQs & Making Sense of Illumina Stock Movements:

Question 1: Is the average return for Illumina stock higher after a drop?

Answer: Consider two situations,

Case 1: Illumina stock drops by -5% or more in a week

Case 2: Illumina stock rises by 5% or more in a week

Is the average return for Illumina stock higher over the subsequent month after Case 1 or Case 2?

ILMN stock fares better after Case 2, with an average return of 2.9% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 4.6% for Case 2.

In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.

Try the Trefis machine learning engine above to see for yourself how Illumina stock is likely to behave after any specific gain or loss over a period.

Question 2: Does patience pay?

Answer: If you buy and hold Illumina stock, the expectation is over time the near-term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.

Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!

For ILMN stock, the returns over the next N days after a -5% change over the last five trading days is detailed in the table below, along with the returns for the S&P500:

You can try the engine to see what this table looks like for Illumina after a larger loss over the last week, month, or quarter.

Question 3: What about the average return after a rise if you wait for a while?

Answer: The average return after a rise is understandably lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks – although ILMN stock appears to be an exception to this general observation.

It’s pretty powerful to test the trend for yourself for Illumina stock by changing the inputs in the charts above.

While ILMN stock may be best avoided for now, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Abbott vs. Corcept.

See all Trefis Featured Analyses and Download Trefis Data here

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