Invitae (NYSE:NVTA) stock popped on investors’ radars earlier this month thanks to its nearly 277% surge in price on Aug 10. Following its latest earnings report, retail traders jumped into the stock as well.
Shares have fallen back considerably since this big move. NVTA is down to a little more than $3 from its Aug. 10 closing price of $8.63 per share.
Yet, while it is significantly cheaper than it was just a few weeks ago, you may want to think twice before diving in, in the hopes it rebounds.
It may be in a hot, fast-growing industry (medical genetics). Given its surged post-earnings, it may seem like good results, not hope and hype, are what caused it go parabolic.
Unfortunately, when you dive into the details, it makes sense why the stock has dropped and could continue to drop from here.
NVTA Stock and its Recent Parabolic Moves
Although it’s up from where it was a few months ago, Invitae remains down massively over the past twelve months. That’s not surprising, given that most speculative growth names have experienced similar plunges during this timeframe. Between rising interest rates, and growing concerns about a recession, such plays have fallen out of favor.
But that didn’t stop speculators from making NVTA stock a buy, following its most recent earnings release. For the preceding quarter (ending June 30), it reported revenue ($136.6 million) ahead of estimates. Net losses for the quarter also came in narrower than expected. Management also reiterated its past guidance.
As mentioned, traders dived in on the heels of this earnings report, yet perhaps not for the results themselves. With around 25.7% of its outstanding float sold short as of July 29, the stock went into earnings heavily shorted.
Traders may have bought it in the hopes that their buying alongside investors impressed with its better-than-expected results, would drive a short-squeeze.
With its triple-digit moves that day, one can argue that this gambit worked. However, short-squeezes don’t last long. That’s what has happened here, with the stock’s big slide following its recent parabolic moves.
Bad Fundamentals Point to a Further Slide
Falling by double-digits since its spike, you may be tempted to “buy the dip” with NVTA stock. After all, didn’t it beat on revenue and earnings, and didn’t it reiterate guidance?
These statements are true, but there are some big caveats. While it beat on earnings, it was only a slight top-line beat. Revenue came in at just $576,000 above consensus.
Losses per share were narrower-than-expected, and they were considerable. During the quarter, losses per share came in at 68 cents. That’s fairly large for a stock trading for just $3.50 per share.
As for guidance? For this year, it only expects “low double-digit” revenue growth. Growth could re-accelerate to between 15% and 25% in 2023. Such prospects would be fine if they meant this company was soon set to hit consistent profitability.
However, that’s not anticipated to be the case. Even as it’s implementing a restructuring plan to cut costs, losses and cash burn, are set to remain high. Expect high cash burn this year (between $600-$650 million) and next year (between $225-$275 million). Barely beating estimates, and set to keep operating deep in the red, a further slide appears in store.
The Verdict With NVTA Stock
Invitae stock currently earns a D rating in my Portfolio Grader. Taking a closer look at the results/guidance itself, it’s clear traders didn’t buy it on “knock it out of the park” numbers. You can chalk up its Aug 10 spike almost entirely to buzz surrounding a possible short-squeeze.
Also, hype surrounding investor Cathie Wood’s involvement with the stock likely played a role. As InvestorPlace’s Eddie Pan reported on Aug 11, funds managed by Wood’s Ark Invest purchased 812,943 shares ahead of earnings.
While better than a revenue/earnings miss, Invitae’s results last quarter weren’t cause for celebration. The prospect of further high cash burn points to a further drop for the stock in the months ahead.
With this, it’s best to avoid it. Given its poor fundamentals, NVTA stock could continue to give back its recent gains.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.