Shares of Lucira Health (LHDX) exploded out of the gate when the company made its stock market debut in February. Despite an initial run-up, though, this new medical-technology stock has lost nearly half its value since it peaked in February.

Lucira Health's over-the-counter COVID-19 tests racked up millions of dollars in sales during the first three months of 2021, leading some investors to wonder if this beaten-down stock can bounce back. Here's what investors need to know about the road ahead of this medical diagnostics start-up.

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Reasons to buy Lucira Health now

During the first three months of 2021, sales of over-the-counter test kits reached $5 million. While this was an impressive start, it's important to note that the first quarter ended before the Food and Drug Administration authorized Lucira Health's COVID-19 test for emergency use without a prescription.

In April, the FDA expanded the availability of Lucira Health's over-the-counter COVID-19 test to anyone who wants it, without a prescription or supervision from a healthcare provider. In May, Amazon began selling the company's test online, allowing almost anyone to get their hands on reliable results without ever leaving the house.

Lucira Health's operation should have all the resources necessary to drive much stronger sales. The company raised an impressive $176 million during a successful initial public offering (IPO) in February, and still had $190 million in cash on its balance sheet at the end of March.

Reasons to remain cautious

Lucira Health's over-the-counter diagnostic is arguably unique, but it isn't the only way to get a COVID-19 test result without visiting a healthcare provider. In April, CVS Health began selling three different at-home tests that received Emergency Use Authorization from the FDA. Abbott Laboratories' (ABT 1.91%) already-popular antigen-based test reached thousands of CVS pharmacies across the country, but Lucira's test didn't make the cut.

In addition to increasing competition, Lucira Health needs to contend with sagging demand. On May 23, the number of new COVID-19 cases reported in the U.S. fell to its lowest level since the earliest days of the pandemic. While some organizations will continue monitoring for the virus, demand for coronavirus testing in the U.S. is likely to fall hard before the end of 2021. Lucira Health began over-the-counter sales in April, but they probably won't be strong enough to offset plummeting demand.

Even a small drop in demand could be bad news for Lucira Health because the company isn't close to breaking even yet. Sales rose to a record $4.5 million during the first three months of 2021, but the company spent $5.4 million producing the tests it sold during the period. That means there wasn't any revenue left over to pay for sales, marketing, and other operating expenses, which soared 268% year over year in the first quarter to $12.4 million.

If Lucira Health's profit margin doesn't improve by leaps and bounds, it's just a matter of time before its cash cushion disappears. If the company can't show investors it's on a clear path to profitability soon, investors buying the stock now could suffer heavy losses.

Wait for confirmation

Lucira Health explained that the excessive cost of goods sold in the first quarter was simply a matter of growing pains; the company is expanding and automating its manufacturing process. But investors want to wait for confirmation that these investments can produce a profit before buying a single share of this beaten-down stock.