Ginkgo Bioworks Holdings (NYSE:DNA), which develops platforms for cell programming, has multiple, positive potential catalysts and a rather low valuation. Moreover, the shares should benefit from investors’ recent interest in buying small-cap stocks that have lost a great deal of their value.
Given that analysts also expect Ginkgo’s top line to rebound sharply in 2025, I believe that risk-tolerant growth investors who are looking for a biotech play can consider buying a small amount of DNA stock at this point.
Potential, Positive Catalysts
Ginkgo’s Ginkgo Canopy program “detects the presence and migration of biological risks, providing early warning and deep insights.” Many companies are undertaking a type of gene therapy called CRISPR/Cas9 gene editing. However, CRISPR can cause DNA to be rerranged, triggering cancer. The Ginkgo Canopy program may be able to warn scientists that DNA has been rearranged in cells whose genes have been edited.
Meanwhile, on April 10, Ginkgo and Novo Nordisk (NYSE:NVO) disclosed they had expanded their strategic partnership. Under the five-year deal, the firms will seek “to improve the manufacturing of Novo Nordisk’s medicines for serious chronic diseases, including diabetes and obesity medications, collaborate on several early pipeline projects,” and develop new technologies.
Given Novo Nordisk’s huge size (the firm generated revenue of over $34 billion last year) and the tremendous success of its weight-loss drug, Ozempic, this deal could prove to be very lucrative for Ginkgo. More specifically, Novo could invest a great deal of money in Ginkgo’s platform to improve its own manufacturing processes and discover valuable, new technologies.
Finally, in an era when many drug companies are utilizing artificial intelligence to a large extent in order to greatly speed up the drug discovery process, Ginkgo’s Lab Data as a Service offering could prove to be very valuable for many firms. That’s because AI requires data to work effectively. Gingko indicates it can use its expertise in “DNA assembly, cell engineering, and high-throughput screening” to create a great deal of data for companies looking to use AI to choose highly promising drug candidates. For example, a drug maker could request DNA data from Ginkgo to utilize AI to test how well certain drug candidates treat a genetic disease.
A Low Valuation and Very Timely
DNA stock is changing hands at a very low enterprise value-to-revenue ratio of 0.83 times. Moreover, the name is a severely beaten-down small capitalization stock at a time when many large investors appear to be very eager to buy such equities. Ginkgo fits into the category because it has a market capitalization of just $780 million. Its shares tumbled 17% in the previous month, 60% in the preceding three months and 79% in 2024.
Meanwhile, in an article published on July 16, CNBC reported “Small caps are the hottest trade going in the stock market now.” The financial news channel’s website noted small-cap stocks have rallied on hopes the Federal Reserve would soon cut interest rates. It noted the leading index for small-cap stocks, the Russell 2000, had hit its highest point since early in 2022.
Ginkgo may be starting to benefit from the trend as the shares jumped 20.6% on July 16 thought they closed 5% lower on July 17.
Also indicating that the company has significant potential over the long term, analysts expect its revenue to climb to $217.64 million in 2025 versus $179.5 million in 2024.
On the date of publication, Larry Ramer did not hold (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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
