What happened
Shares of Invitae (NVTA -72.22%) are crashing today, down by 45.5% as of 11:41 a.m. ET. This huge decline came only one day after the stock skyrocketed following the medical genetics specialist's better-than-expected second-quarter update.
Wednesday's massive gain of nearly 247% wasn't just caused by investors' exuberance over Invitae's Q2 results. Short-sellers appeared to scramble to cover their positions, resulting in a classic short squeeze.
But gravity always kicks in sooner or later for high-flying stocks propelled by short squeezes. For Invitae, it came sooner rather than later.
So what
The most important thing for long-term investors to note is that nothing has changed about Invitae's underlying business prospects since yesterday. The company still expects moderate revenue growth this year that will accelerate beyond 2023.
On the other hand, the improvement reported in Invitae's Q2 update didn't justify the stock more than tripling within a few hours. The run-up yesterday was overdone. We're seeing the natural consequences today.
Even with the current drop, though, Invitae's share price remains close to twice the level that it traded earlier this week. It's possible that the aftermath of the short squeeze could play out for several more days.
Now what
Invitae thinks that its current cash position will fund operations through the end of 2024. That means the company normally wouldn't be likely to issue additional shares to raise cash and dilute the value of existing shares. However, if the stock stays at an elevated level, management could be tempted to take advantage of the situation and conduct a stock offering.
Invitae's improving business provides a reason for optimism for long-term investors. Over the short term, though, the stock could continue to be highly volatile.
