Will T2 Biosystems Continue to Rally? The price of shares of in vitro diagnostic specialist T2 Biosystems (TTOO) soared after the company confirmed that its T2SARS-CoV-2 Panel can detect different COVID-19 strains. However, given the COVID-19 diagnostic testing industry's competitive landscape, will the company be able to maintain its rally? Read on.

An invitro diagnostics company, T2 Biosystems, Inc. (TTOO) is involved in the development of diagnostic products in the United States and internationally. TTOO's stock has gained 12.1% so far this year. The gain is attributable primarily to the company's T2SARS-CoV-2 Panel, a COVID-19 molecular diagnostic test that can detect the Brazil (P.1) variant of the SARS-CoV-2 virus.

However, TTOO's shares have declined 5.4% over the past month after the company reported losses in its first quarter financial results. Also, ongoing investigations into TTO related to possible breaches of fiduciary duty could be of concern to investors. In addition, TTOO's poor profitability, as competition intensifies in the coronavirus diagnostic market, could cause the stock to experience further declines.

Click here to checkout our Healthcare Sector Report for 2021

The stock is currently trading 63.3% below its 52-week high of $3.79, which it hit on February 8, 2021. Here is what we think could influence TTOO's performance in the near term:

Intense Rivalry In the COVID-19 Diagnostic Market

The coronavirus diagnostic-supplies industry has been evolving rapidly, and the development of diagnostic kits, technological innovation and rapid launch of testing products worldwide continues to support its growth. A significant upsurge in COVID-19 cases last year motivated diagnostic operators to invest substantial amounts in the development of rapid diagnostic testing solutions. Market leaders like Abbott Laboratories (ABT) and Roche Holding AG have also launched their respective COVID-19 diagnostic testing products. In fact, with more suppliers entering the market, it could be challenging for TTOO to retain its market share.

Ongoing Investigations Can Be a Concern

On May 15, Levi & Korsinsky, LLP commenced an investigation of TTOO concerning alleged fiduciary duty breaches by the company's board of directors and certain officers. Also, in March, Purcell Julie & Lefkowitz LLP, a class action law firm, started investigating TTOO for possible breaches of fiduciary duty. Since these actions could make investors anxious about the stock's near-term prospects, its share price could exhibit further weakness.

Inadequate Financials

TTOO's net revenues came in at $6.96 million for the first quarter, ended March 31, 2021, representing a 173% improvement year-over-year. However, it generated a $9.7 million loss from operations, while its net loss came in at $10.66 million. It reported an $0.07 loss per share over this period. The company's total costs and expenses rose 3.4% year-over-year to $16.66 million.

Poor Profitability

TTOO's net income margin, gross profit margin, ROA and ROTC came in at negative 188.6%, 73.9%, 60.7% and 47%, respectively. Furthermore, its trailing-12-month levered free cash flow margin and EBIT margin are negative 109.2% and 164%, respectively. Also, the company's trailing-12-month cash from operations came in at a negative 37.18 million.

POWR Ratings Reflect Bleak Prospects

TTOO has an overall D rating, which translates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with the weighting of each optimized to improve overall performance.

Our proprietary rating system also evaluates each stock based on eight different categories. TTOO has a D grade for Quality and Momentum. The stock's weak profitability and negative price returns over the past month are reflected in these grades.

Also, it has a C grade for Value. This is consistent with the company's forward EV/Sales ratio of 8.85x, which is 27.8% higher than the industry average of 6.93x.

In addition to the grades we've highlighted, one can check out additional TTOO ratings for Sentiment, Stability and Growth here.

TTOO is ranked #161 of 181 stocks in the C-rated Medical - Devices & Equipment industry.

Click here to view the top-rated stocks in the Medical - Devices & Equipment industry.

Bottom Line

TTOO's efficient product pipeline, which includes its T2SARS-CoV-2 Panel and its T2Resistance Panel, has helped its stock soar over the past year. However, the deep market penetration of dominant players in the COVID-19 Diagnostic Testing industry and the company's ongoing fiduciary duty breach investigations have raised investors' concerns. Furthermore, its weak profitability and financials could limit its growth prospects. As such, we think the stock is best avoided now.

Click here to checkout our Healthcare Sector Report for 2021

TTOO shares fell $0.01 (-0.72%) in premarket trading Tuesday. Year-to-date, TTOO has gained 9.68%, versus a 13.25% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.

More...