What happened
Shares of medical diagnostic company Exact Sciences (EXAS 1.80%) fell by a jaw-dropping 41% over the whole of 2021, according to data provided by S&P Global Market Intelligence. Although the novel cancer diagnostic company saw a healthy rise in sales last year, and this sales growth is widely expected to continue in 2022, Exact's staggering losses haven't been sitting well with shareholders of late.
During the first nine months of 2021, for instance, Exact lost a noteworthy $634 million. What's more, the company is on track to remain cash flow negative for the foreseeable future.
Image source: Getty Images.
So what
Exact's stock has long traded at a hefty premium, thanks to the enormous commercial potential of its non-invasive test for colon cancer known as Cologuard. But with Pfizer walking away from its co-promotion deal with Cologuard late last year and investors clearly favoring cash flow positive companies in this turbulent environment, it isn't exactly surprising to see Exact's premium take a big hit. Exact, after all, will now have to carry the added expense of a larger sales force for Cologuard, as well as the full price of future marketing materials for this novel colon cancer test.
That's not the end of the world to be sure. Pfizer wasn't exactly maximizing its marketing efforts for Cologuard prior to this breakup. Moreover, Exact will now have the opportunity to possibly accelerate Cologuard's commercial trajectory. That being said, Pfizer's commercial reach and infrastructure will surely be hard to replace. Exact thus has a lot of work to do to keep Cologuard's sales headed in the right direction.
Now what
Is Exact's stock a red-hot buy after this poor showing in 2021? Unfortunately, the market isn't particularly enamored with cash flow negative companies at the moment. And that's a core problem Exact simply can't fix right now. That's not a knock against Exact by any means. Over the balance of the current decade, after all, its shares ought to outperform the broader market, perhaps by a considerable amount. Nonetheless, this year is shaping up to be a tough one for the medical diagnostics company, due mainly to the negative investor sentiment toward companies with less-than-stellar fundamentals. All told, Exact's stock is arguably a bargain for investors with a long-term outlook. But this medical diagnostic stock doesn't stand out as a screaming buy in 2022.
