Daily Stock Watch: Is Invitae Stock Worth Buying?

By Duncan Ferris


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Today we examine Invitae Corporation (NYSE: NVTA) stock, which has seen its price stumble on Tuesday morning. Is this testing specialist a good investment?

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Invitae Corporation (NYSE: NVTA) stock took a hit on Tuesday morning after the company announced a switch-up of its strategy.

The company said streamlining and cost reduction programs are expected to deliver approximately $326m in annualized cost savings to be fully realized by 2023, extending the company's cash runway to the end of 2024.

These changes involve significant headcount reductions, reportedly amounting to 1,000 jobs cut, and consolidation of underutilized office and laboratory space.

Additionally, the business will seek to focus on its core testing businesses in order to speed the pathway to positive cash flow and drive the completion of its genome management platform.

Invitae said it will shift its focus to serving less than a dozen international geographies where the testing business demonstrates the potential to reach positive cash flow in a shorter duration.

Finally, the business also announced changes in leadership. Primary among these changes was that Kenneth D. Knight, who has served as Invitae's chief operating officer since 2020, will step into the role of CEO. Meanwhile, co-founder Randy Scott, who himself served as CEO from 2012 to 2017, is returning to the company as chairman of the board.

What Does Invitae Do?

Invitae Corporation is a San Francisco-headquartered, medical genetics company. The business seeks to integrate genetic information into mainstream medicine to improve healthcare of people in the United States, Canada and beyond.

The company offers genetic tests in various clinical areas, including hereditary cancer, cardiology, neurology, pediatrics, oncology, metabolic conditions and rare diseases.

It serves patients, healthcare providers, biopharma companies, and other partners. The company was formerly known as Locus Development, Inc. and changed its name to Invitae Corporation in 2012.

How Does Invitae Make Money?

The company makes money by offering genetic testing services and combining genetic and clinical information. By administering tests, the business is able to build its genome information database.

The more information is added to this database, the more powerful a tool it becomes for helping patients and thus can more easily be leveraged to create further revenue streams.

NVTA Stock Financials

The stock has a price-to-book ratio of 0.23, compared to the healthcare sector's average of 5.75. Meanwhile, the company's price-to-sales ratio of 1.30 is below the 4.29 standard across the healthcare sector. These indicate that the stock could be undervalued.

However, the company consistently fails to turn a profit and, prior to the newly announced reshaping of its strategy, has burned through cash for fun.

Earnings and Outlook

As well as announcing a change in strategy, the company has also offered a preliminary peek at its second-quarter results and new guidance. 

Invitae said revenue for the quarter ended June 30 is approximately $136m, up from $116.3m in the same period 12 months prior. 

However, revenue in the near term is anticipated to be flat in the second half of 2022 over the first half, representing a low double-digit growth rate for the full year 2022 over 2021 despite the impacts of the strategic realignment.

The company added that it expected 2023 to be an adjustment year and for longer-term revenue growth rates to return to between 15% and 25% beyond 2023.

NVTA Investment Risks

The risks in investing in a company like Invitae are pretty clear. For one thing, the business consistently falls short of turning a profit and is having to undergo severe restructuring efforts. There is always the chance that these efforts will not be enough to create value for shareholders or even to save the business from collapse.

Is NVTA a Good Investment?

Companies like Invitae, with a share price below $5, can offer investors pretty explosive growth opportunities. However, they are also among the riskiest investments you can choose to make.

What's more, Invitae's sweeping restructuring does not inspire confidence and clearly indicates that things have not been going well at the company. Sometimes a change of direction is just what a company needs in order to get back onto the right track, but it's very risky to back a business that has just made wholesale changes.

It's also worth noting that the company's share price has tanked over the past year, dropping by more than 90% to the $2.36 it sits at the time of writing. A bold investor might see this as a chance to "buy the dip," but such a massive drop in share price might be enough to scare most potential shareholders away.

Want to read about more trending stocks? Check out our analysis of Eton Pharma and Ericsson!


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Author: Duncan Ferris

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.

Duncan Ferris does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Duncan Ferris has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions 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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