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Why Shares of DermTech Dropped 19% in July

By Jim Halley – Aug 9, 2021 at 8:27AM

Key Points

  • The company has lost nearly twice as much money this year through six months as it did in the same period last year.
  • Revenue has increased 135%, year over year, through six months.
  • The company's noninvasive adhesive skin patches to detect skin cancer and other skin disorders are considered a potentially disruptive technology.

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The company's noninvasive skin genomics platform has great potential, but its losses have made investors wary.

What happened

Shares of DermTech (DMTK 2.68%) lost 19% of their value in July, according to data provided by S&P Global Intelligence. The stock opened at $41.24 when the market opened on July 1 but was down to $33.66 at the close on July 30. The stock's nadir in the month came on July 27, when it dropped to $31.31 during the day and closed at $32.64. To say that the stock has been volatile would be an understatement -- its 52-week range is from $9.85 to $84.49.

It's easy to see that the growth stock overheated a bit early this year and when investors pivoted a bit from growth stocks to value stocks, DermTech's share price was one of the casualties.

Patient and a dermatologist in a doctor's office.

Image source: Getty Images.

So what

Though the company's sales have improved dramatically this year, the problem is the spending it took to get there. DermTech's second-quarter numbers show it lost $32.2 million in the first six months of 2021, nearly twice as much money as it did the same period in 2020.

Revenue through six months was $5.1 million, up 135% year over. That's great, but that's still not a lot of revenue after the company more than doubled it sales and marketing spending in that period to $14.4 million, compared to $6.3 million in 2020.

Now what

DermTech's adhesive skin patch pigmented lesion assay to determine skin cancer is a disruptive technology that its studies say produces far fewer false positives for skin cancer and other skin conditions. It's also less invasive than traditional testing methods. The company has great potential, but it's a long-term play. Much of the company's valuation is driven by the company's prospects for growth.

According to the Skin Cancer Foundation, more people are diagnosed with skin cancer than all other cancers combined, and 1 in 5 Americans will develop skin cancer by the age of 70.

While no one likes to see a company with increasing net losses, there's not that much to worry about with DermTech. The company is spending money to grow its brand, doubling its sales force and concentrating on introducing its product to dermatologists. Obviously, this is increasing sales and at some point, the increased revenue from sales will make the company profitable. In the meantime, the company has $258 million in cash, enough to last it four more years at its current burn rate.

Jim Halley owns shares of DermTech, Inc. The Motley Fool owns shares of and recommends DermTech, Inc. The Motley Fool has a disclosure policy.

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