Lucira Health, Inc. (NASDAQ:LHDX) has been one of the most disappointing and wildest IPOs in recent memory. On Feb. 5, the coronavirus testmaker went public at $17 and soared to a high watermark of $38 per share. Shortly after that, however, its momentum stalled. The stock is hovering around $7.
Right now, the company has a market capitalization of just $257 million. Not even three months ago, it managed to raise $153 million in proceeds from investors. With that boost in mind and its negligible debt, could this be the ultimate contrarian stock to buy now?
What's behind the crazy price movement?
On Nov. 17, the U.S. Food and Drug Administration (FDA) gave the green light to the company's do-it-yourself COVID-19 molecular test, Lucira Check It, for prescription use. The device can fit in the palm of your hand, and requires just two AA batteries to function. By using a quick self-serve nasal swab, patients could obtain their COVID-19 test results in less than half an hour.
In a study involving about 100 patients, Lucira's test was shown to have a percent positive agreeability of 94% to 96% with other tests on the market, for both symptomatic and asymptomatic patients. In early April, the FDA authorized the test for over-the-counter use. Consumers can order the test kit online for $55.
The problem is that the demand for coronavirus vaccines has in part replaced the demand for testing. Unfortunately for Lucira Health, it has no product revenue to depend on other than from its Check It coronavirus test. What's more, the test is neither reusable nor available at a walk-in pharmacy at the moment. By the time Lucira gets the full test delivery logistics up and running, the U.S. vaccination program could be complete (unless the company can do so before July).
This was a significant innovation in molecular testing, but it came just a bit too late. As a result, investors who bought shares when COVID-19 cases were high in February started to liquidate en masse.
Is there any hope left?
Surprisingly enough, there is a way that Lucira Health can come back from this -- and perhaps make massive wins for early IPO investors. Its test kit's specifications are ideal for use in conflict zones. In February, the Department of Homeland Security awarded $2 billion to four labs (Lucira Health was not one of them) to provide COVID-19 tests for national defense purposes over five years. So there's definitely room for a possible pop in Lucira's share price if it lands a government testing contract.
What's the verdict?
The problem is that the government contract scenario is a gamble at this point. Lucira Health predicts it will generate just $4.5 million in sales in the first quarter of 2021. It's clear that if investors are wrong about its ability to secure testing demand, they stand to lose the entirety of their investment by the time vaccinations are complete. Unless one has an affinity for all-or-nothing stocks, I'd stay well away from this healthcare company.