Investors have long waited for Luminex (LMNX) to deliver on its potential in molecular diagnostics and biological research, but the numbers are what they are - prior to the pandemic, Luminex was generating revenue growth at a good-but-not-great pace in the high single-digits and not generating any real margin or FCF leverage. With that, the trailing 10-year and 15-year annualized returns have been quite lackluster at about 5% and 6%, respectively, and the shares have lagged its comp group in four of the last five years.
Having followed Luminex long ago as a sell-side analyst (it's a different company today, but not completely different) and seeing its evolution through multiple M&A deals, my lingering concern is just that Luminex doesn't have the right technology or the right model to really prosper in its target markets. I like the flexible pricing strategy with VERIGENE, and the pandemic has certainly exposed the system/technology to new customers who may become long-time users, but I don't see Luminex ever becoming a leader.
All of that likely explains why these shares do look undervalued. I don't think near-term revenue growth in the double-digits, long-term revenue growth of around 8%, long-term FCF margins in the high teens, or near-term EBITDA margins in the high teens are particularly heroic assumptions, but it's enough to support a fair value around $35.
The big "but" here is that Luminex lives in a "grey zone" for investors, with inadequate revenue/earning growth for med-tech growth investors and inadequate market share and margins for more GARP/value-oriented investors who will pay for margins/ROICs over growth.
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