Here's Why Pacific Biosciences of California Is Surging Today

What happened

Pacific Biosciences of California (NASDAQ: PACB) stock popped 27% in early morning trading Thursday after the company announced a big purchase order. Shares of the genome sequencing equipment manufacturer had settled down to a 15.6% gain as of 10:45 a.m. EST.

So what

It looks like BGI Genomics, a Chinese company that already owns two of PacBio's next-generation Sequel systems, wants 10 more to meet growing demand for genome sequencing services. That's good news for PacBio shareholders, especially after its disappointing third-quarter report.

Cash raining on an excited person looking at their phone.

Image source: Getty Images.

Dreams of breaking into huge markets for clinical applications evaporated when diagnostics giant Roche ended a contract with the company at the end of 2016. While 10 systems on their own aren't going to carry PacBio to sustainable profitability, the sale does signal rising demand for the company's slow-but-accurate sequencing technology from a wide variety of scientific communities.

Now what

After PacBio reported a similar sized order from China's Novogene last summer, the stock rose as well. With its razor-and-blade business model, PacBio needs to sell more than just systems to produce sustained gains. Investors will be able to gauge how well recent purchase orders might translate into long-term demand for consumable accessories in the quarters ahead.

Helping existing customers transition to the Sequel was more expensive than expected, but the dust started settling last year. In the third quarter, gross profit margins expanded slightly. Look for a continuation of this trend when the company reports fourth-quarter earnings at the beginning of February.

More From The Motley Fool

• 3 Growth Stocks at Deep-Value Prices

• 5 Expected Social Security Changes in 2018

• 6 Years Later, 6 Charts That Show How Far Apple, Inc. Has Come Since Steve Jobs' Passing

• 10 Best Stocks to Buy Today

• The $16,122 Social Security Bonus You Cannot Afford to Miss

• Bitcoin's Biggest Competitor Isn't Ethereum -- It's This

Cory Renauer has no position in any of the stocks mentioned. The Motley Fool recommends Pacific Biosciences of California. The Motley Fool has a disclosure policy.