With shares down by 91% in the last three years, and 78% in the last 12 months alone, Invitae (NVTA -55.88%) and its investors are bound to be feeling the burn. The genetic testing company's downward spiral led Wall Street analysts to downgrade the stock, and many are suggesting that shareholders quit their positions.
But where there's pessimism about a stock's future, there's sometimes an opportunity for a turnaround -- and investors who go against the grain may have the potential to capture outsized rewards. Let's explore how realistic it is for Invitae to make a comeback so that you'll know whether the odds are in your favor.
It's too early to bet on a turnaround
Invitae's business model is to sell genetic tests by mail to consumers, healthcare providers, and genetic counselors. The idea is that people are willing to pay to learn more about their vulnerabilities to certain medical conditions like cancers, not to mention information about how their bodies might metabolize various medicines. And given its preliminary reported figures for 2022 ($516 million in revenue, 12% higher than a year prior), it's clear that Invitae's proposition to customers has some traction.
The problem is that Invitae is burning money like wild -- and it doesn't have much left. While it has around $555 million in cash and equivalents on hand, it lost more than $654.4 million between Q3 of 2022 and the year before, thanks to its total expenses of more than $1.3 billion. And with more than $1.7 billion in debt against a market cap of $530 million, interest payments will be nibbling at its cash hoard with increasing intensity. Nor can it expect to be able to borrow at an attractive rate with so much debt, assuming anyone will be willing to lend to the unprofitable business at all.
In July, the company quit several of its international markets, and it also slashed some of its product offerings to reduce costs. The changes are slated to generate $326 million in annualized cost savings this year, which management claims will give it enough money to operate through 2024. But withdrawing from markets and ceasing to sell products will doubtlessly deliver a heavy hit to the top line.
So it's unclear whether the expected cost savings will be enough for Invitae to become profitable anytime soon. And it's reasonable to expect that its rate of revenue growth will flatline soon, which is especially bearish for a growth stock like Invitae.
Why there could be a sliver of hope
As dire as things may seem for Invitae, there is a (somewhat small) chance that it'll be able to forge ahead. Wall Street analysts estimate, on average, that the company will bring in roughly the same amount of revenue for 2022 and 2023. At the same time, management's goals are to cut costs and return to profitable growth, which it plans to accomplish by expanding its oncology testing options and growing its patient network.
Growing while cutting costs is a tall order, and there isn't any evidence that the company is on track to succeed as of yet. Still, if it really does manage to reduce its expenses by its target without sacrificing the top line (thanks to ongoing growth in its profitable segments, which Wall Street seems to believe at least in part), the plan might work.
But that's not a strong thesis to make an investment with, as it banks on the business becoming profitable before it runs out of money. So most investors should probably avoid this stock for now, even if there is a faint hope of a turnaround in a year or so.
