Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Here's Why Twist Bioscience Stock Soared 89% in November

By Maxx Chatsko - Dec 10, 2018 at 10:58AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The DNA synthesis leader had a great month following its IPO.

What happened

Shares of Twist Bioscience ( TWST 3.64% ) nearly doubled last month, logging gains of 89%, according to data provided by S&P Global Market Intelligence. There wasn't any company-specific news, but investors were excited to own the leading manufacturer of custom-designed DNA sequences following its initial public offering (IPO).

Synthetic DNA is required for high-throughput genetic engineering applications, such as when designing industrial microbes or engineered crops, and could even provide value in materials applications, like digital data storage or drug delivery. Industrial biotech companies and academic researchers can synthesize their own custom DNA, but can save time in certain research and development (R&D) workflows by ordering sequences from companies such as Twist Bioscience.

Is it really worth a nearly $800 million market cap, though?

Rising stock charts superimposed over digital map of the world

Image source: Getty Images.

So what

The business raised nearly $70 million for its market debut to go along with about $92 million in cash and cash equivalents held at the end of June 2018. That gives Twist Bioscience a relatively healthy cash balance to hit the ground running with expansion efforts, but it was on pace to lose nearly $70 million from operations in fiscal 2018 (which ended in September, although the company hasn't released full-year results yet).

Investors are hoping triple-digit year-over-year revenue growth can deliver gross profits in fiscal 2019 or shortly thereafter, but that may not be enough to offset soaring operating expenses. It's also worth noting that substantially all of the company's revenue comes from just two customers: Ginkgo Bioworks and Microsoft. That top-heavy structure is a big risk to the Twist Bioscience, especially considering that Ginkgo Bioworks isn't a sustainable business at the moment and Microsoft is only buying synthetic DNA for an R&D project.

Twist Bioscience is also being sued by Agilent Technologies, which alleges the DNA synthesis technology upon which the company is built was misappropriated when founder and CEO Emily Leproust was Agilent's director of applications and chemistry R&D. It's a serious allegation that's working its way through the courts now.

Now what

It's not too surprising that investors are getting excited about the ability to own Twist Bioscience, which is hands down the leading DNA synthesis company. That said, a market cap of nearly $800 million is one heck of a premium. If the business turns in $25 million in revenue for fiscal 2018, then it would be trading at 32 times sales. That's several times more expensive than a reasonable premium.

Throw in the fact that it's likely to burn at least half of its cash balance in the next 12 months to expand at home and in China (which may end up being a horrible idea given concerns over intellectual property theft), isn't close to turning a profit, generates most of its revenue from only two customers, and is being sued by Agilent, it's evident that investors should steer clear of this overpriced stock for the time being.

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Twist Bioscience Corporation Stock Quote
Twist Bioscience Corporation
TWST
$90.23 (3.64%) $3.17

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
635%
 
S&P 500 Returns
141%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/02/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.