Invitae Recovers from its December Market Beating

Invitae (NVTA) is on fire following a rough December. The company’s latest operating results have sent the stock soaring from $10 to just under $14.

Invitae, a leading genetics testing company, has reached triple digit growth in terms of sales as well as revenue. The company’s latest financial results come on the heels of three fantastic quarters. Invitae executives anticipate revenue will be in excess of $220 million as more than half a million of the company’s genetics tests will be sold in 2019. These figures represent quite the substantial increase from the year prior when revenue was under $145 million.

Invitae is leading the charge in an ever-changing genetics industry. The company uses next-generation tools for sequencing, builds economies of scale from small labs and paves the way for remarkable advances in this rapidly evolving line of work. In short, Invitae is in the business of making money from genetic data. There is plenty of room for profit as genetic testing can be used for improving health diagnoses, treating health maladies, altering digital advertising and plenty more.

It was only five years ago when Invitae had revenue of a mere $1.6 million. The company’s 2018 year guidance states sales will be in the $130 million range. The initial quarter of 2018 was a launching point of sorts; Invitae impressed investors with rapidly growing genetic testing revenue and stellar year-over-year volume growth. The quarter represented the company’s 20th straight quarter of double-digit growth for test volumes. Invitae’s cost per goods sold for each test decreased to $280 in the first quarter of the prior year. This is a remarkable drop from $360 at the same time the year prior. The rock-solid numbers continued to roll in as the year progressed. Year-over-year revenue growth is in the triple-digits with regularity. The company’s rapid growth rate has investors betting it will soon rake in the cash and earn market share from industry competitors.

Though this genetics stock certainly has some weak points, it also has the potential to become one of the industry’s superstars in the years to come. The question is whether Invitae’s management can execute its overarching strategy. Getting out of the red and into the black is an important first step for this budding genetics testing superstar. Investors are demanding the company reach profitability. 2019 might be the year it happens.

There is hope throughout investing circles that Invitae will enter the black at some point in 2019. Though the company is certainly growing, corporate strategy dictated from above has favored investing in the business for the long-term in an effort to win a larger share of the genetic testing industry. Unfortunately, the company’s shares have been diluted and the losses have mounted even though hope is sky-high. All in all, nearly 65 million shares are outstanding, representing more than two times as many shares as those outstanding from a couple years ago.

Some investors are questioning whether Invitae will continue to endure operating losses for the next couple of years or even longer. The company is in the midst of blending in several recent acquisitions to improve its genetic testing services for reproductive and prenatal health. Though it is anticipated marketing costs will spike following these acquisitions, there is also the potential for rapid growth and cost-savings spread across the entirety of the business. Furthermore, company leaders have stated they will decrease cash burn between 40% and 50% as the new year starts. This is important as the business consumed more than $30 million in cash across merely the first couple months of the year prior. The planned reduction in cash burn will help minimize losses across posterity while setting the stage for triple-digit growth.

Invitae’s breakneck growth will not continue forever. If the company can accomplish 50% gross margin and reduce cash burn by a significant margin, it might be in the black at some point soon. However, 2020 is the earliest Invitae could possibly turn a profit. Current Invitae investors are advised to hold tight to see if the company can enter and remain in the black. If Invitae continues to win market share, investors on the sidelines should consider buying and holding a stake in this growing company for the long-term.


Ethan Warrick
Wealth Authority

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