More than two decades have passed since research scientists first announced a method to identify every strand of a human’s DNA. In the early years of gene sequencing research, progress was slow. However, many investors may be shocked to learn just how far this industry has come in just the past few years.

Equipment advances now permit rapid and accurate mapping of virtually every type of organism from microbes and plants to animals and humans. The genetic data obtained with these technologies have numerous public health applications, such as developing better infectious disease therapies, screening for cancer or birth defects and studying population-wide patterns of illness.

Early last year, the gene sequencing industry finally attained an ambitious goal that it had been pursuing for years: the ability to rapidly map an entire human genome for just $1,000. A decade ago, the process took months and cost many millions of dollars.

Still, the achievement didn’t receive much media attention, and neither did the firm responsible for the breakthrough. It’s time that investors know more about Illumina, Inc. (Nasdaq: ILMN). Rarely does a company so thoroughly dominate its niche, especially where such exciting growth opportunities still abound.

Indeed, the gene sequencing market is expected to balloon to a projected $20 billion by 2020 from $5 billion in 2014, as researchers and health care professionals increasingly rely on genetic information to enhance the precision of patient diagnosis and treatment. With a roughly 70% market share, Illumina should be the major beneficiary of that expansion.

The firm built up such a commanding lead over the years by being first-to-market with the most advanced gene sequencing systems. Much of its technological advantage now stems from the rapid adoption of the HiSeq X 10 sequencer, introduced in January 2014. This was the system that produced the first $1,000 genome.

#-ad_banner-#Demand for the HiSeq X 10 comes mainly from world-class medical research centers, which are typically most able to afford the $10-million price tag. Such centers often study extremely large patient populations and thus may frequently need the system’s tremendous sequencing capacity, which can process nearly five dozen genomes per day (up to 20,000 annually).

Marketing efforts focus most heavily on centers involved in cancer research. The oncology market alone for these machines represents a $12 billion opportunity, management estimates.

Last year, Illumina received about 200 orders for the HiSeq X 10, far exceeding management’s expectations. Among the largest buyers were the Universities of Edinburgh and Glasgow, which are part of the Scottish Genomes Partnership that’s studying a wide range of diseases at the genetic level.

Earlier this year, Illumina introduced several other gene sequencers including the HiSeq X 5. This scaled-down version of the X 10 model can handle up to 9,000 genomes annually and costs $6 million, which should suit the requirements of many leading research centers.

The recently launched HiSeq 3000 and 4000 are similar to the X 5 and X 10 systems, but with processing capacity geared toward institutions with less than $1 million to spend on gene sequencing.

The $250,000 NextSeq 500 introduced last year is a benchtop model made for clinical laboratories and maps one genome at a time. With the $275,000 NextSeq 550, which is scheduled to begin shipping this quarter, such labs will also get diagnostic capabilities such as prenatal genetic testing.

For Illumina, competition is greatest in the benchtop segment of the gene sequencing market, where pricing is a key consideration. But even in this niche, the company tends to dominate. “We’re skeptical that any competitor could make serious inroads over the next few years,” Morningstar analysts say.

An industry-leading and regularly upgraded product portfolio has enabled Illumina to accumulate the largest base of installed gene-sequencing devices, by a significant margin. At present, this base numbers in the thousands (compared with hundreds for the firm’s nearest rivals), and it’s quickly expanding.

A larger installed base means that Illumina is seeing accelerating growth in sales of kits, chemical reagents and other higher-margin consumables, which are used during gene sequencing. For example, sales of consumables rose 19% in the fourth quarter of 2014 (from a year earlier), and grew a more robust 27% in the first quarter of 2015 (to $308 million).

Taken together, gene sequencing equipment, consumables and related services account for about 85% of total revenue. They’re the main reason why Illumina was able to increase total revenue by more than 70% and net income by almost 400% since 2012.

The services segment, which currently only accounts for 15% of revenue, is emerging as another high-growth area. There, the main opportunity is noninvasive prenatal testing (NIPT), a business that’s benefitting from strong demand for quick, simple screens for Down Syndrome and other congenital disorders.

Illumina capitalizes by offering a screening test that accurately detects chromosomal abnormalities associated with six common birth defects. NIPT devices performed about 50,000 prenatal screens in the first quarter, up from 43,000 in the fourth quarter of last year. This helped drive a 36% (year-over-year) gain in first-quarter segment revenue to $79 million.

Risks To Consider: A rival could develop superior gene sequencing technologies, which might detract significantly from Illumina’s outlook. Also, the sequencing market may eventually become saturated with the latest technologies, leading to an interval of weaker performance as Illumina awaits the opportunity to introduce the next generation of gene sequencers.

Action To Take –> Illumina is the undisputed king of the fast-growing gene sequencing market. The company’s technological superiority, rising orders and reliable consumables and prenatal screening revenue should support more annual profit growth in excess of 20% in the coming five years.

Illumina’s stock carries a hefty premium — 70 times trailing earnings and 50 times forward earnings — which sets up shareholders for potentially nasty short-term volatility. However, projected growth implies more than 100% upside for those who can stomach that kind of volatility.

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