Ginkgo Bioworks (DNA -0.68%) is a biotech unlike any other, and it's no surprise why it's consistently attracting the attention of bigwig portfolio managers like Cathie Wood. Wood's confidence in Ginkgo is doubtlessly why it's worth nearly 2.5% of ARK Invest's various portfolios, including her ARK Innovation ETF. In just the past month, she's bought shares three times, including most recently on Sept. 21.

What's more, analysts on Wall Street calculate on average that the stock could rise by 132% over the coming 12 months. That stands in stark contrast to its performance over the last 12 months, which saw its shares fall by 38%. So is this stock worth buying, or will its decline continue?

Management's compelling vision

Ginkgo Bioworks has an ambitious business model with two segments. The biosecurity segment aims to help institutions and governments to monitor infectious disease outbreaks by providing population-level testing of wastewater and individuals. Those activities brought in $35 million in the second quarter of 2023, but with the threat of COVID-19 appearing to attenuate, revenue is unlikely to recover its past highs in excess of $100 million per quarter anytime soon.

The other, and far more important segment, is the biofoundry, which could have a much sunnier future. It's typically difficult and expensive to design and cultivate customized microorganisms for specific purposes, but businesses in biopharma commonly need to make them anyway, as do some players in agriculture and even a few in industrial chemicals.

Gingko's goal for the biofoundry is to create a highly efficient and automated platform combining both software and hardware that can make the otherwise laborious process into a piece of cake. To accomplish that, it needs to operate at industrial scale, which management claims will drive down its costs to engineer and manufacture whatever its customers want, regardless of precisely what that may be. In Q2, it made $45 million in revenue from the biofoundry's 63 customers, but that could just be the beginning.

On Sept. 27, it inked a new drug-discovery collaboration worth up to $331 million in milestone payments with Pfizer, which hopes to use the biotech's platform to screen potential leads for new RNA-based medicines. Its roster of other collaborators is already star studded, with leaders like Moderna, Eli Lilly, and Novo Nordisk eager to work with a company that might be able to help them cut costs.

In the long term, the more collaborators it onboards, the more of a return it'll make on its investments in automation capital, not to mention the more that it'll cement itself as a worthy partner. Its existing customer base could thus become a competitive advantage of sorts.

Key assumptions still need proving

The rub is that Gingko Bioworks is currently deeply unprofitable, and its quarterly gross margin is no better than it was three years ago despite onboarding dozens of new biofoundry programs in the same period. That detracts from management's claims about the presence of economies of scale in cellular engineering and manufacturing, which are core to the company's chances of success.

Management believes that Ginkgo's $1.1 billion in cash will be enough of a runway to hold it over until the biofoundry consistently turns a profit. But they haven't provided a concrete time line for when that might be, except to say that it's penciled in for the medium term. Such uncertainty should be a huge caution sign for risk-averse investors. 

On the other hand, for those seeking long-term growth, the company could easily become a shareholder's dream if and when the profitability issue is solved. There aren't currently any competitors anywhere near Ginkgo's size attempting to create a biofoundry platform. Many of the most powerful biopharma players are backing it with agreements worth hundreds of millions of dollars.

The problem it seeks to address is going to continue being a major stumbling block for the biopharma sector for many years to come, so there will be an ongoing incentive to work with it. Overall, the balance of factors suggests that this stock is worth buying, provided that you are willing to hold it for at least the next few years while it finds its footing.

It's riskiest in the near term as there's not much progress in profitability to point to right now. But eventually, there might be, and that's when the stock could take off.