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First profits and underlying business growth make YourGene a buy (YGEN)

Following the algorithm-induced panic selling of last week — attributed to coronavirus spread fears and a flight to safety — we could have entered a period of bargains galore in the markets. YourGene Health (LSE:YGEN) is at the top of my buy list. 

The AIM-listed molecular diagnostics testing firm began life as Premaitha Health, with operations focused on non-invasive pre-natal screening tests, before expanding its Taiwanese subsidiary YourGene BioScience. These two businesses were combined formally in November 2018.

A costly three-and-a-half-year intellectual property dispute with $40 billion genome-sequencing giant Illumina (NASDAQ:ILMN) consumed much management time and effort for a long period. The resolution of that case meant YGEN used Illumina’s sequencing tech to develop its trademarked IONA test, which is used in the NHS in the UK to screen fetuses for genetic abnormalities including cystic fibrosis, Down’s syndrome, Edwards’ syndrome and Patau’s syndrome. 

Priced to sell

The YGEN share price retraced from a four-year high in late February, reaching 17p, as the wider FTSE plunged on fears of the spread of coronavirus. To me, that means a cheaper entry point: and with YGEN reporting its maiden positive earnings in its 2019 half year results, the shares are priced at 11 times trailing earnings. 

Throughout 2019, the share price encountered resistance at around 13.5p, so the consistent break to upside means I am putting a price target in the region of 16.5p for the short term. That matches the next Fibonacci pivot point for resistance. 

Expanding 

The acquisition of Elucigene in April 2019 means the company has been able to expand into the US market and launch its first oncology product. Elucigene DPYD tests to identify cancer patients at risk of lethal side effects from chemotherapy treatment.

On 14 February 2020 YGEN announced that the TGA, a division of Australia’s Department of Health, approved Elucigene DPYD for sale in the territory. 

In those 2019 half-year results, the Manchester healthtech firm boasted a 97% increase in revenue while gross profits grew 141% to £4.7m with organic growth of 56%. In the last five years, revenue has improved from £100,000 to £8.8 million.

The fact that the underlying business is growing strongly, and not simply from acquisitions, says to me that there is plenty of upside here to take advantage of. 

YGEN has an abundance of positive RNS updates. That by no means guarentees a share on the rise, but when these updates are backed by such strong fundamentals, it gives me much hope for the future. 

Valuethemarkets.com, Digitonic Ltd (and our owners, directors, officers, managers, employees, affiliates, agents and assigns) are not responsible for the content or accuracy of this article. The information included in this article is based solely on information provided by the company or companies mentioned above.

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

  • Tom Rodgers does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.
  • Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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