What happened
Shares of precision oncology company Guardant Health (GH -3.60%) popped 9.8% higher today as of market close. There was little in the way of news from Guardant Health that caused the spike, but there was general strength across the biotech space while the stock market overall was flat. The Nasdaq Biotech was up 2%, while the S&P 500 was tracking toward a 0.1% decline on the day.
So what
Today's run higher for the stock may simply be a relief rally. Guardant Health shares are still down more than 60% from their all-time high in early 2021. It's a similar story to other high-growth stocks that exploded higher early on in the pandemic, only to come back down to earth again. With the Federal Reserve poised to hike interest rates several times this year, companies that operate at a loss like Guardant Health are out of favor among investors at the moment.
As a reminder, rising interest rates lower the present value of risk assets like stocks, especially high-growth names that won't turn a profit anytime soon.
Image source: Getty Images.
Now what
Additionally, genetic sequencing technologist Illumina (ILMN 0.63%) recently filed a lawsuit against Guardant Health, claiming certain founders and employees (some formerly employed by Illumina) took Illumina proprietary research with them to start Guardant back in 2011. Guardant replied on March 17, calling Illumina's claims frivolous. Guardant said it believes Illumina is retaliating against it for calling out antitrust concerns regarding Illumina's acquisition of Grail in 2021.
Legal back-and-forth like this is hardly rare in the biotech industry. Long-term Guardant Health investors should focus instead on the company's financial progress. Full-year 2021 revenue was up 30% to $374 million, but adjusted net loss was $252 million. Eventually Guardant will need to narrow that rate of cash burn, but for now the company is in decent shape with $933 million in cash and short-term investments and another $698 million in long-term marketable investments, offset by $1.13 billion in convertible debt.
Even so, Guardant Health is trading for 20 times trailing-12-month sales. This is no cheap stock after the big sell-off in the last year. Temper expectations going forward accordingly.
