Oxford Nanopore Technologies (LSE: ONT) is a growth stock that has caught my eye for my Stocks and Shares ISA. Despite its high valuation being a concern in the past, with the share price dropping around 51% in 2024, I am taking a closer look at it now.
The company has developed a unique nanopore DNA and RNA sequencing platform, which involves passing genetic material through nanopores to produce electrical signals for deciphering DNA and RNA sequences. This real-time data method offers rapid insights, with its portable MinION device being significantly smaller than traditional sequencing machines, providing greater flexibility for researchers in remote locations.
In 2023, the company saw a 39% year-on-year growth in underlying life science research tools revenue to £170m, excluding legacy Covid-related contracts, with active customer accounts increasing by 11% to over 7,600. The majority of its revenue comes from consumables, following a ‘razor-and-blades’ business model where most money is made from providing supplies after selling a device. However, the company reported a total loss of £154.5m for the year, wider than the previous year’s loss.
Looking ahead, management is expecting 20%-30% underlying revenue growth this year and greater than 30% in the medium term, indicating that the growth story remains intact. Comparing its performance to rivals, Pacific Biosciences of California and Illumina have also experienced declines in their share prices.
While there may be risks of further share price declines due to the company’s lack of reliable profits at present, it could potentially become an acquisition target given its world-class technology and growing market opportunity. With my recent investment losses in other healthcare stocks, I am hesitant to invest in another loss-making stock like Oxford Nanopore. However, with its 51% drop in share price and increasing adoption of its devices in various research areas, it could present a buying opportunity if market sentiment changes or a bidder emerges.
In conclusion, while the future of Oxford Nanopore remains uncertain, it is worth keeping an eye on for potential investment opportunities.