San Francisco-based genetic testing company Invitae Corporation (NVTA - Get Rating) offers genetic tests in various clinical areas, such as cardiology, neurology, hereditary cancer, pediatrics and rare diseases. Its stock has risen 17.2% over the past month, driven by its plans to expand the capacity of its genetic testing services in North Carolina.

However, its share price has tumbled 19.3% year-to-date and 4.5% over the past three months. The stock is currently trading 45.2% below its 52-week high of $61.59, indicating short-term bearishness.

Although NVTA’s impressive, personalized therapies and improved trials have allowed it to generate $103.6 million in revenue in the first quarter of 2021, the company has not yet generated a profit. In addition, it has been bleeding cash at a time when its expenses and losses are already high.

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Here is what we think could influence NVTA’s performance in the near term:

Recent Acquisition Increases Expenses

In April, NVTA agreed to acquire Genosity Inc. for approximately $200 million to accelerate the company’s personalized oncology offerings. The transaction includes a $120 million  cash payment and approximately $80 million in shares of NVTA’s common stock. Although the acquisition would strengthen NVTA’s cancer care and monitoring offerings and support their  greater adoption, it could drain the company’s cash reserves and increase its expenses in the near term. Given NVTA’s weak cash balance, this move could be risky.

Lackluster Financials

NVTA’s total operating expenses for the first quarter ended March 31, 2021, was $140.5 million. This compares to $121.6 million for the first quarter of 2020. Also, its non-GAAP net loss came in at $122.2 million, while its non-GAAP loss per share was $0.63 over this period. NVTA’s loss from operations rose 14.9% year-over-year to $112.36 million. And as of March 31, 2021, the company’s debt stood at $106.69 million. This compares to  $104.45 million of debt as of December 31, 2020. Furthermore, its cash burn totaled $112.35 million during this quarter.

NVTA’s 26.8% trailing-12-month gross profit margin is 51.9% lower than the 55.8% industry average. Its trailing-12-month ROE, ROA and ROTC are negative 45.4%, 15.8% and 17.6%, respectively. Also, its 0.1% trailing-12-month asset turnover ratio  is 60.7% lower than the 0.4% industry average. The company’s net income margin and EBITDA margin are also negative 192.2% and 142%, respectively.

Stretched Valuation

In terms of trailing-12-month EV/Sales, NVTA is currently trading at 21.20x, which is 150% higher than the 8.48% industry average. And its 14.72 forward Price/Sales multiple is 81.2% higher than the 8.12 industry average.

Unfavorable POWR Ratings

NVTA has an overall F rating, which translates to Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. NVTA has an F grade for Quality. The stock’s lower-than-industry gross profit margin is reflected in this grade.

It also has an F grade for Value, which is consistent with the stock’s premium valuation.

In terms of Stability Grade, NVTA has a D. The stock’s 1.9 beta  justifies this grade.

Beyond the grades we’ve highlighted, one can check out additional NVTA ratings for Sentiment, Growth, and Momentum here.

Among  the 56 stocks in the D-rated Medical – Diagnostics/Research industry, NVTA is ranked #55. For other top stocks in this industry, be sure to click here.

Bottom Line

Even though NVTA’s advancement in personalized health monitoring and therapeutic development have raised investors’ hopes about the stock’s prospects, we think they should steer clear of  the stock because the company’s weak fundamentals don’t justify its lofty valuation. Furthermore, given the company’s increasing operational and net loss, its recent acquisition may put more pressure on its balance sheet. So, we believe it’s wise to avoid the stock now.

Click here to checkout our Healthcare Sector Report for 2021

NVTA shares fell $33.73 (-100.00%) in premarket trading Thursday. Year-to-date, NVTA has declined -19.16%, versus a 15.41% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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