Genetic testing company Invitae (NVTA 800.00%) has a lot of long-term potential as it could help improve the quality of healthcare for people and play a big role in transforming the industry. It has an ambitious goal of making genetic testing more efficient and affordable. But it's an uphill challenge because although the company has achieved significant growth over the years, it has also been incurring large losses. Below, I'll look at how much a $10,000 investment in the company would be worth today, and whether you should consider buying shares today.
Where the stock was five years ago
In 2018, Invitae was coming off a year where its revenue totaled $68 million and had more than doubled the prior-year's tally of $25 million. It was a hot growth stock but also an incredibly risky and unprofitable one, incurring a loss of more than $123 million that year.
On the first day of trading in 2018, the stock closed at a price of $9.34. If you invested $10,000 at that price, you would have been able to buy roughly 1,071 shares. Today, that investment would be worth around $2,180, a decline of 78%.
What has gone wrong for Invitae?
Things obviously haven't gone as planned for Invitae investors. But it comes with the territory of investing in an up-and-coming growth stock that isn't profitable, and Invitae is a risky investment to own due to its poor financials.
One way for an unprofitable company to fund its business is by issuing shares. And while that can lead to an influx of cash, it dilutes existing shareholders, and can quickly send a stock into a tailspin. Invitae hasn't been shy when it comes to issuing shares, and that's a key reason the stock has struggled.
NVTA Shares Outstanding data by YCharts
While the company has achieved strong growth and over the trailing 12 months its revenue topped $520 million, the problem is that its net losses are a staggering $3.2 billion over that time frame. The business is hugely unprofitable and the risk of further dilution remains high.
The positive is that the company projects that its long-term growth rate will be between 15% and 25%, and so the growth opportunities are still there. But with such an abysmal bottom line and the company burning through tons of cash, it could be a long time before Invitae's operations are profitable and cash-flow-positive, assuming they ever are.
Is the stock worth taking a chance on today?
Genetic testing could be a big industry in the future, but today, it's worth a modest $10 billion. It could take a long time for an investment in that industry to pay off, and there's no guarantee Invitae will be one of the top companies in that area if and when that happens.
The company also isn't well funded, reporting cash and marketable securities of $586 million as of Sept. 30. That's right around how much it has burned through during the past 12 months just from its day-to-day operations. That suggests to me that more equity offerings are inevitable, and that the stock will continue to decline from where it is now. So unless you're willing to buy and hold for the very long term, and are OK with the likelihood that you incur significant losses, you're better off avoiding Invitae right now.
