What happened
Invitae's (NVTA +0.00%) shares soared 20.5% on Wednesday as bargain-hunters and short covering converged to send the iShares Russell 2000 Index ETF (IWM 2.17%) index 1.9% higher today.
So what
Global stock markets have tumbled on fear that social distancing and sheltering in place is causing a significant slowdown in economic activity. The iShares Russell 2000 Index ETF has lost almost 40% of its value in 2020, and Invitae, which is a member of that index, was down roughly 25% year-to-date through Tuesday's close.
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On Wednesday, investor optimism that U.S. federal government stimulus package will ease the rate of decline in gross domestic product sparked a rally, forcing short sellers to cover bets on falling prices and prompting investors to reconsider the outlook for growth stocks like Invitae, a healthcare company that provides neonatal and cancer genetic screening to parents and patients.
As of March 13, over 22 million shares, or 25.7% of Invitae's shares available for trading were held short, despite the fact that the company generated revenue of $216.8 million in 2019, up 47% from 2018.
Now what
Invitae's goal is to reduce its cost per test to levels that allow it to provide genetic screening to everybody. In 2019, it cost the company just $245 per sample on average to perform a test, down 7% year over year. For perspective, it performed just 150,000 tests at an average cost of $335 per test in 2017.
In 2020, the company's guidance is to perform over 725,000 tests, generating over $330 million in sales. If it can deliver on its revenue outlook, it would represent top-line growth of more than 50%. The outlook is encouraging, but investors should realize management is reinvesting heavily back into its business to gain widespread use of its tests. As a result, its operating costs were $461 million last year, resulting in a net loss of $242 million.
