What happened?
Invitae (NVTA -75.00%) 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 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.
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.