Illumina Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of genetic analysis specialist Illumina (NAS: ILMN) were getting hammered by investors today, falling as much as 16% on heavy volume.

So what: Mr. Market is a fickle fellow indeed. After the market close yesterday, Illumina announced second-quarter financial results, and they looked pretty darn good. Revenue rose 36% from last year to $288 million, while non-GAAP earnings per share jumped 46% to $0.38. Wall Street analysts were expecting $0.37 in per-share earnings on $282 million in sales.

Even better, the company raised its growth outlook for the year. At the midpoint, it now expects revenue and earnings-per-share growth of 25% and 34.5%, respectively. That's up from previous guidance of 20% revenue growth and 30% non-GAAP EPS growth.

Now what: How can investors possibly be upset with all of that? It's easy: They were expecting even more. Earnings growth of 34.5% would put 2011 earnings per share at roughly $1.43, which is well short of the $1.52 that analysts were estimating. And with Illumina shares trading at around 45 times that higher expectation prior to today, it's apparent that investors had very high hopes for screaming growth from the company.

Could this be an overreaction from investors that will quickly reverse itself? I'm not convinced. Unless the expectation is for reaccelerating earnings growth, it seems that Illumina shares could stand to trade at a lower multiple.

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