What happened
Shares of Invitae (NVTA 35.00%) rose nearly 12% today as the S&P 500 continued its seemingly improbable bounce back from March lows. There's a global pandemic. Tens of millions of Americans are out of work. Energy prices and demand have collapsed. The European Union as an entity might not survive the financial consequences of the health crisis. But none of that has stopped Wall Street from seeing better days over the horizon.
There's nothing inherently wrong with being optimistic about the global economy, but many economists think the issue is really one of timing. In other words, the true economic impacts of the coronavirus pandemic have yet to be factored into the stock market because it takes time to collect, process, and publish the data.
Unfortunately, the same could be true for Invitae, especially if a warning from a peer is any guide. As of 3:13 p.m. EDT, the growth stock had settled to a 9.4% gain.
Image source: Getty Images.
So what
Investors have been attracted to Invitae's growth potential. The genetic testing business delivered full-year 2019 revenue of $216 million, up from $147 million in 2018 and just $68 million in 2017.
Investors might be thinking the company can maintain an impressive growth trajectory despite the coronavirus pandemic. That might be true. The individuals requiring genetic tests offered by the company -- pregnant women or people with cancer -- still need care. And in early April, Invitae described steps it was taking to reduce friction between its platform and telemedicine services, now the new normal for communicating with doctors while practicing social distancing.
However, investors also need to appreciate the unique situation of the moment. The coronavirus pandemic has disrupted visible signs of modern life, such as foot traffic in restaurants and air traffic at airports, but also less obvious parts of the economy, such as used car markets and clinical trials.
It might not be a perfect comparison, but genetic testing peer NeoGenomics recently provided an update on the business impact of COVID-19. In the last two weeks of March and in early April, after the first state lockdowns were ordered, the company witnessed a 20% year-over-year decline in clinical test volume. Is Invitae experiencing a similar decline to its business?
Now what
Invitae hasn't provided an update on the business impact of the coronavirus pandemic. If it experiences a testing volume decline of the same magnitude as NeoGenomics, then investors will need to adjust their outlook for 2020 and perhaps 2021. It's possible the long-term potential of the business will remain intact, but the company's growth-at-all-costs business model isn't well positioned to navigate a period of prolonged uncertainty.
