Please ensure Javascript is enabled for purposes of website accessibility

Why Did Invitae Stock Fall 17% in July?

By Ryan Downie – Aug 6, 2021 at 6:02PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This genetic testing innovator slumped along with other genomics stocks last month.

What happened?

Invitae (NVTA -6.59%) shares dropped 17% in July as investors moved capital away from the smaller innovative genomic science stocks. No meaningful news was published about the stock, though there were announcements that other care providers would be partnering with Invitae to add genetic testing to their service selection.

Invitae is a relatively small and unprofitable company with massive growth aspirations. That attracts speculative investors, making the stock prone to substantial volatility. As the chart below shows, Invitae was quite active during a month without any important news. Its price movements were essentially more extreme versions of those exhibited by similar companies.

NVTA Total Return Level Chart

NVTA Total Return Level data by YCharts

So what?

Invitae provides genetic testing services. The company partners with care providers to provide more in-depth biological information for patients. Genetic data improves diagnosis accuracy and makes treatment more efficient. Invitae also supports preventive care.

Child looks at DNA models in school.

Image source: Getty Images.

Invitae is delivering stellar growth. Its sales and gross profit have doubled so far this year. Despite that, the company is still far from profitability. Its operating expenses were more than double its sales. Investors shouldn't expect that to change anytime soon.

Now what?

Invitae shouldn't be interesting to investors who don't have a substantial tolerance for risk and volatility. It's a promising company with enormous potential upside, and the contributions to healthcare available through genetic research are really exciting. That's caught the eye of high-profile growth investors such as Cathie Wood.

Nonetheless, buying this stock requires a leap of faith, because the company's financial stability still lies far off in the future. There are a number of operational, competitive, and potential regulatory hurdles to navigate between now and then.

When investor sentiment deteriorates regarding genomics stocks (or growth stocks in general), Invitae doesn't have ironclad fundamentals to back itself up. There are no profits, net cash inflows, or dividends that create a clear intrinsic value.

The new price-to-book ratio of 2.55 and price-to-sales ratio of 14 are certainly more attractive than past valuation levels, but most of Invitae's story still remains to be told. The stock will probably spend the next few years rising and falling with investor risk appetite and the momentum of other genetic science companies. If you were a believer in Invitae before July, the 17% loss shouldn't have dissuaded you. If you aren't prepared to experience high volatility for the next few years, then the recent price dip still doesn't make this a great time to buy.

Ryan Downie 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.

Stocks Mentioned

Invitae Stock Quote
Invitae
NVTA
$2.55 (-6.59%) $0.18

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.