The Pullback In Pacific Biosciences Makes For A Much More Interesting Opportunity

 

As the frenzy that drove many growth stocks, particularly in life sciences, to eye-watering multiples earlier this year has faded, Pacific Biosciences (PACB) (“PacBio”) shares are getting more interesting to me again. To be as clear as I can be right from the beginning, I think PacBio has great technology and growing use-cases in sequencing, and I think the company now has exceptional management and a good growth plan. My only major issue is valuation.

I’m modeling long-term revenue growth (2020-2030) of close to 30%/year on a compound basis, with operating profitability in 2026 and positive free cash flow in 2025, and I believe the company could exit 2030 with a FCF margin north of 30% - though a lot depends on the strategic decisions made between now and then and the implications those will have for R&D and SG&A spending. More to the point, I believe PacBio has the best long-read sequencing technology out there, and with significant improvements in throughput and cost, I believe the use of long-read technology is going to accelerate significantly in the coming decade.

PacBio isn’t conventionally cheap today, and I wouldn’t really expect it to be, as there is momentum in the business, strong partnerships, and good funding/liquidity. A continuation/reacceleration of this sell-off to $20 or below would make for an easy decision, but even in the mid-$20’s it’s a tempting name.

 

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The Pullback In Pacific Biosciences Makes For A Much More Interesting Opportunity