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Here's Why Invitae Tumbled 32.9% in March

By Maxx Chatsko – Apr 6, 2020 at 1:15AM

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Growth stocks were among the most severely punished during the recent stock market crash.

What happened

Shares of Invitae (NVTA -2.08%) lost nearly 33% last month, according to data from S&P Global Market Intelligence. The coronavirus pandemic spared few stocks, but growth stocks -- many of which trade at premium valuations -- in particular had a painful March. 

That's not to say the business or its shareholders only face indirect risks. The coronavirus pandemic has swiftly changed the trajectory of the economy, which has made investors question the viability of growth-at-all-costs business models. Invitae, which reported an operating loss of $244 million in 2019, might be forced to embrace more financial discipline -- and quickly. 

A steadily rising chart that takes a sudden downturn.

Image source: Getty Images.

So what

There are a lot of moving parts to the unfolding economic crisis (or crises, depending on how you look at it), but investors should consider the direct risks facing Invitae. 

Given that much of the United States is under stay-at-home orders, it's reasonable to expect a significant reduction in genetic test volumes. People simply aren't going to doctor offices right now in the same numbers as before, although certain products, such as cancer testing, are probably too essential to forgo. 

Bad timing has also tripped up Invitae. The business announced three acquisitions on March 10 -- just days before the United States took dramatic action to mitigate the pandemic -- for a combined price tag of $195 million. Acquisition talks were in the works for several months, so the seemingly poor timing marked by the announcements was out of the company's control. 

However, the timing forced the business to conduct a public offering of common stock at a price ($9 per share) that would've been characterized as impossibly low just weeks prior. That led to more shares being offered to raise the cash needed to offset the acquisitions and brace for a struggling year ahead. 

Now what

Invitae began 2020 with roughly $392 million in cash. That should be enough to fund over one year of operations once the acquisitions and public offering are taken into account. Investors might also expect certain operating expenses, such as sales and marketing, to be significantly curtailed during the pandemic, offering a bit of a reprieve to the income statement. However, the company will probably need to reconsider its growth-at-all-costs business model, even if only temporarily.

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Invitae. The Motley Fool has a disclosure policy.

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