Progenity Stock Needs to Fall Further to Become a Viable Investment

Bearish sentiment is growing for Progenity (NASDAQ:PROG) after a dream run. The biotechnology company’s shares have been up 146.42% in the last three months. Last year, the company went public at $15 per share and saw its price plummet to below a dollar, earning the infamous label “penny stock.” Shares have been on a tear since September though.

A scientist holds a test tube while it is in a container

Source: Shutterstock

Progenity stock is gaining momentum as a popular pick among retail investors. As its value continues to rise, its popularity online has also increased steadily over time. Progenity was one of the most frequently mentioned tickers on Reddit forums in November. We are almost a year into the meme stock phenomenon. Hence, investors will appreciate what it means for a ticker to become popular on social media platforms.

PROG stock has become a meme target for investors who trade mostly off momentum rather than fundamentals. You could argue that retail investor enthusiasm combined with the potential of a short squeeze is what is driving this bull run. However, it is not all negative. Companies in the Reddit space are getting funds to finance turnarounds or expand operations. But PROG stock needs more than Reddit momentum to sustain this bull run.

Short Interest Is a Key Reason to Invest in This One

According to the latest data, PROG stock has a short interest of more than 15% on the free float. Although it is not as high as the 27% reported on Oct. 15, it is still sizable. A short interest above 10% can be considered very high.

The elevated short interest is often seen as a red flag for investors. But the concept is changing because of Redditors. Usually, high short interest is an indicator for investors to stay away. However, due to the impact of Reddit, it now also means that short-term gains are there for the taking in case of a short squeeze.

On the company front, Progenity is focused on applying its proprietary ingestible device technology in combination with the delivery of de-risked Food and Drug Administration (FDA) -approved therapies. In doing so, they seek to fill an outstanding unmet clinical need for those diagnosed with inflammatory bowel disease.

Progenity has reported clinical verification data for its Preecludia preeclampsia rule-out laboratory-developed test now in development. With an observed 98% negative predictive value (NPV), Progenity believes this new tool could become the first of its kind to help triage possible preeclampsia cases at U.S hospitals. Preeclampsia is a dangerous disease that begins after 20 weeks of pregnancy causing high blood pressure. If left untreated, this condition can lead to serious and even fatal complications for both the mother and the baby. Hence, there is a huge addressable market the company can tap.

Financials Leave Much to Be Desired

Progenity reported a net loss of $43.7 million in the third quarter and only had $182,000 in revenue. These figures are improved over the $52,000 in revenue and a net loss of $47 million recorded last year. But the company is not close to making a profit anytime soon.

The stock has been volatile in recent weeks, but there are some signs of long-term optimism. The company has gotten four patents connected to its GI tract delivery system for therapeutics. That will help its bottom line immensely. Additionally, they have begun several cost-cutting measures to improve profitability even further. The biotech company has a strong pipeline with more than 220 pending patent applications and 180 patents. It is betting on its unique drug delivery system to grow profits in the future.

However, the financials indicate that things are moving slowly. Hence, investors looking for short-term gains will find this one enticing. But value investors will continue to stay away from this one.

Future Is Vague for PROG Stock

Progenity and other meme stocks owe a great deal to Reddit this year. Plucked from obscurity, these companies became overnight sensations. Analysts hoping for share prices to return to Earth stand disappointed. Meanwhile, the companies themselves are raising capital to finance future growth.

However, the staying power of any stock depends on fundamental strength. Reddit can keep prices up for a year or two. But then long-term success will depend on if the company itself can generate meaningful revenue on its own. If it is unable to do so, the stock will lose steam. It’s now a matter of when, not if.

Consequently, investing in such an enterprise becomes a costly endeavor. If you want to trade this one, it is best to invest only a small amount. Since the short interest is decreasing, Redditors might not bite. And although the product portfolio is alluring, it will take time for the company to become profitable. That might mean holding PROG stock for a long time before your investment bears fruit. That is not a luxury most investors can afford.

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Read More: Penny Stocks — How to Profit Without Getting Scammed 

On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence.


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