Oxford Nanopore Technologies (LSE: ONT) is a growth stock that has seen a significant drop in its share price of around 51% in 2024. This has caught the attention of investors, including myself, who have been hesitant due to its high valuation.
The company is known for developing the world’s only nanopore DNA and RNA sequencing platform. This innovative technology involves passing genetic material through nanopores, which produce electrical signals used to decipher the sequence of DNA and RNA in real-time. This method provides rapid insights and its portable MinION device offers greater flexibility, making it attractive to researchers working in remote locations.
In terms of financial performance, Oxford Nanopore saw a 39% year-on-year growth in underlying life science research tools revenue to £170m in 2023. The company’s ‘razor-and-blades’ business model, where revenue comes mainly from consumables after selling a device, is promising for future profitability. However, the company reported a total loss of £154.5m for the year, widening from the previous year’s loss of £91m.
Despite the loss, management is optimistic about the future, guiding for 20%-30% underlying revenue growth this year and over 30% in the medium term. This growth outlook is particularly impressive compared to competitors like Pacific Biosciences of California and Illumina, whose share prices have also declined.
While Oxford Nanopore’s price-to-sales ratio is higher than its US peers, the forward-looking P/S multiple for 2024 is more attractive at 4.9. However, investors may be wary of the company’s lack of current profitability, which could lead to further share price declines or potential acquisition interest from private equity firms.
Personally, I have been cautious about investing in loss-making healthcare stocks following recent losses in other companies. However, for those willing to take a risk, Oxford Nanopore’s recent share price drop presents a potential opportunity, especially considering its increasing adoption in various research areas and relatively low market cap of £833m. The potential for a rebound in market sentiment or acquisition interest could drive the shares higher in the future.