What happened
Shares of Invitae (NVTA 25.93%) declined over 10% today as stock markets fell on concerns about the pace of an economic recovery. When stock markets plunged in mid-March, they quickly rallied as Wall Street grew more comfortable that the coronavirus pandemic could be contained and at least parts of the economy could snap back relatively quickly. But Fed Chairman Jerome Powell cautioned yesterday it may not be so simple, as the nation's top economists expect negative effects from the health crisis to linger for years.
That's forcing Wall Street to rethink some of its assumptions about the pace of an economic recovery. As such, major stock indices are being readjusted lower today, with growth stocks such as Invitae experiencing the most significant declines. But that's not the only concern for shareholders.
As of 2:59 p.m. EDT, the growth stock had settled to an 8.7% loss.
Image source: Getty Images.
So what
Before the coronavirus pandemic struck, Invitae had an easy time convincing investors that its growth-at-all-costs business model would be worth it in the long run. Rising operating losses accrued to scale the technology platform were simply the price that had to be paid for double-digit growth rates.
The new economic uncertainty of 2020 has made investors a little more cautious. In the first quarter of 2020, Invitae reported an operating loss of $98 million and burned through $62 million in cash. Concerns over the sustainability of the growth strategy have been compounded by the fact that test volumes dropped 50% during the strictest period of stay-at-home orders.
While confidence in reopening plans helped to lift shares of Invitae above prices from the beginning of 2020, the confidence was always a little fragile and tied to avoiding additional waves of cases. A second wave of infections could lead to a second wave of movement restrictions, which wouldn't bode well for the ability to sell genetic tests.
Unfortunately, some states appear to be in the midst of new spikes. Texas just reported the most daily cases since the pandemic started, while California reported the highest number of hospitalizations in one month.
Now what
Shares of Invitae are falling for two reasons. First, the stock market is tumbling on fading confidence in the pace of an economic recovery. As a growth stock, Invitae will be more volatile than the stock market.
Second, rising cases in certain states make a second wave of outbreaks -- and potentially, a second wave of movement restrictions -- more likely. Invitae has built a business around face-to-face interactions between individuals and doctors, which means it needs states to fully reopen to return to its former growth trajectory.
While the company has been forced to beef up telemedicine capabilities sooner than expected due to the coronavirus pandemic, and not all sample collection needs to be done in a doctor's office, investors simply have no way of knowing if genetic testing services can make a seamless transition to virtual environments. More answers will emerge when the business reports second-quarter 2020 operating results this summer, but investors can expect volatility in the meantime.
