Affymetrix, Inc. (NDAQ: AFFX) shares plummeted after the company reduced its first quarter expectations to $170 million, including an intellectual property payment of $90 million. The life sciences company also reduced its full-year estimates from an earlier range of $505 million to $525 million to a new range of $490 million to $510 million. The reduction comes as a result of lower research spending by pharmaceutical and industry customers.
The troubled Affymetrix is currently exploring ways to reduce expenses in order to at least partially offset the impact of this revenue reduction. So far, it has laid off 23 people in West Sacramento and plans two more rounds of job cuts in the near future in order to further reduce its operating expenses and overhead. More extreme measures could be taken in the future if revenue reductions continue to persist.
Currently, Affymetrix trades at around 60x earnings for 40x future earnings. Its lackluster growth rate gives the stock a PEG of 1.36, which means it may be slightly overvalued. The company also lags its peers with a 3.3% growth rate compared to a 10.3% growth rate for its peers and a 6% growth rate for its nearest competitor. Affymetrix's operating margins are also well below their peers despite a higher growth margin. This suggests that its costs tend to be higher than its peers and could be substantially lowered in order to more effectively compete.
Perhaps the only largest upside is the massive amount of cash on the books. Affymetrix has a whopping $494 million - or $7.13 per share - in cash on its books. This accounts for nearly 70% of the stock's current market value. Clearly, value could be unlocked here if the company began a share buyback program or distributed a special dividend. Combined with cost cutting measures, this stock could quickly become one worth watching!
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