You probably won't be shocked to learn that Organovo Holdings, Inc. (NASDAQ:ONVO) has historically been a risky stock. After all, the share price of the 3D bioprinting company dropped nearly 36% in 2014 and 66% in 2015, and it's down 23% so far this year. Over the last three and half years, only in 2016 did Organovo stock generate positive returns.

But the company now has products on the market with fast-growing revenue. It has a new CEO at the helm with solid experience. Just how risky is Organovo over the long term?

Measuring risk

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The good news

It's not hard to find positives for Organovo. Consider that throughout most of 2014, the company had a market cap of over $500 million, but it only generated revenue of $571,000 in its fiscal year ending March 2015. Most of that revenue stemmed from collaboration agreements rather than product sales. 

Today, Organovo's market cap stands at less than $275 million. However, the company made more than $4.2 million in revenue in its latest fiscal year. And the majority of that total came from product sales of its 3D bioprinted liver and kidney tissues.

Organovo claimed 11 customers in the top 25 global pharmaceutical companies earlier this year. At least two of them have presented or published data that helped promote Organovo's 3D tissues. Last year, Bristol-Myers Squibb (NYSE:BMY) scientists co-presented with Organovo researchers at the Society of Toxicology's annual meeting. A few months later, Roche (OTC:RHHBY) and Organovo researchers published data about the superiority of Organovo's human liver tissue in detecting toxicity compared to traditional pre-clinical testing methods in the scientific journal PLOS One.  

One could argue that Organovo is less risky now than it has been in the past. The company's revenue is higher than before. It has two products on the market. It has more customers than ever, including several really big ones. And Organovo stock is priced lower than it's been for most of the last three and a half years.  

Good news, bad news drawing

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The bad news

If anyone had any doubts about the risk associated with Organovo, though, the company's announcement in February 2017 that it was slashing its revenue outlook probably dispelled those doubts. Organovo cut its fiscal 2017 revenue guidance by 23% at the midpoint. Why? Some customers demanded more validation studies before placing orders for Organovo's 3D bioprinted tissues.

This underscored the main risk for Organovo: that its products might not provide the expected benefits. The company has worked hard to build credibility for its 3D tissues. The Bristol-Myers Squibb presentation and the Roche paper helped, but they're not enough. So now, Organovo is conducting additional validation studies to convince skeptical potential customers to use its tissues. New CEO Taylor Crouch stated in June that these studies were ongoing and that 46 compounds had been studied. 

Crouch replaced former CEO Keith Murphy. Before his departure, Murphy predicted that Organovo's new metabolism services could allow the company to double its revenue. However, as of June, the company has only had a couple of orders for these services so far. There's a major risk that metabolism services won't catch on as expected.

Perhaps the greatest risk, though, is Organovo's initiative in developing 3D bioprinted therapeutic tissues. The company's preclinical results from implanting 3D bioprinted human liver tissue in mice were encouraging. However, there's a long way to go, and there are plenty of opportunities to fail with this technology.   

Risk knob

Image source: Getty Images.

Overall risk level

How risky is Organovo overall? On a scale from one to 10, with 10 reflecting the highest level of risk, I'd say Organovo stock might receive a score of eight.

Some risks remain with the validation of its 3D human kidney and liver tissues, although I'm not overly concerned that those studies won't pan out. Development of bioprinted therapeutic tissues is another story. Realistically, the odds of success right now aren't very favorable simply because it's still so early.

More than anything, though, Organovo's valuation makes owning the stock risky. Shares currently trade at nearly 38 times expected sales for fiscal year 2018. That stratospheric level implies enormous growth is already baked into the stock price. 

On the other hand, with great risk comes the potential for great reward. Organovo is a speculative stock -- but it's one that could pay off in a huge way if its technology proves to be successful.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.