2 Biotech Stocks That Are Screaming "SELL ME!" The biotech sector is witnessing the headwinds from the banking crisis, layoffs, and the Inflation Reduction Act. So, fundamentally weak biotech stocks Ginkgo Bioworks Holdings (DNA) and Novavax (NVAX) might...
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The biotech sector is witnessing the headwinds from the banking crisis, layoffs, and the Inflation Reduction Act. So, fundamentally weak biotech stocks Ginkgo Bioworks Holdings (DNA) and Novavax (NVAX) might be best avoided. Read on.
The biotech industry thrived during the pandemic. However, despite robust demand, the industry is currently pressured by macroeconomic headwinds and layoffs. Hence, let's take a look at biotech stocks Ginkgo Bioworks Holdings, Inc. (DNA) and Novavax, Inc. (NVAX) and discuss why it's best to steer clear of these stocks.
More than 7,000 individuals lost their jobs in biotech companies in 2022. Moreover, the sector reported 1,449 layoffs in January 2023 alone. There were 174 in the same month a year ago. So far this year, 19 biotech companies have announced job cuts.
According to data provided by Biogen Inc. (BIIB) Chairman and former Cowen & Co. Vice Chairman Stelios Papadopoulos, biotech raised $1.57 billion in IPOs last year, a decrease of more than 90% from $16.50 billion in 2021.
Furthermore, biotech stocks have been under pressure amid the banking crisis and the Inflation Reduction Act, a new federal law allowing Medicare to bargain for lower prescription prices. The industry's fears have been worsened by the uncertainty surrounding the number of potential discounts.
Take a look at the stocks mentioned above:
Ginkgo Bioworks Holdings, Inc. (DNA)
DNA engages in the development of a platform for cell programming. Its platform is used to program cells to enable the biological production of products, such as novel therapeutics, food ingredients, and chemicals derived from petroleum.
Its forward EV/Sales multiple of 6.03 is 311.1% higher than the 1.47 industry average. In terms of its forward Price/Sales, DNA is trading at 8.89x, which is 688.9% higher than the industry average of 1.13x.
DNA's ROTA of negative 73.72% is lower than the industry average of 6.94%. Also, its ROCE of negative 129.87% is lower than the industry average of 11.61%.
DNA's revenue declined 33.8% from the year-ago value to $98.29 million in the fourth quarter ended December 31, 2022. The company's current assets came in at $1.45 billion for the period that ended December 31, 2022, compared to $1.72 billion for the period that ended December 31, 2021.
Also, its current liabilities came in at $172.96 million, compared to $134.76 million for the same period the prior year.
Analysts expect DNA's revenue to decrease 36% year-over-year to $305.80 million in 2023. Its EPS is expected to remain negative $0.34 in 2023. It has missed the EPS estimates in three of four trailing quarters. Over the past year, the stock has lost 61.8% to close the last trading session at $1.35.
DNA's poor fundamentals are reflected in its POWR Ratings. The stock has an overall F rating, equating to a Strong Sell in our rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
DNA has an F grade for Stability and a D for Value, Momentum, Sentiment, and Quality. It is ranked #358 out of 379 stocks in the F-rated Biotech industry. Click here to access POWR Ratings for DNA for Growth.
Novavax, Inc. (NVAX)
NVAX a biotechnology company, that promotes improved health by discovering, developing, and commercializing vaccines to protect against serious infectious diseases.
Its forward EV/Sales multiple of 0.01 is 99.7% higher than the 3.68 industry average. In terms of its forward Price/Sales, NVAX is trading at 0.81x, which is 80.2% higher than the industry average of 4.10x.
NVAX's gross profit margin of negative 7.87% is lower than the industry average of 55.85%. Also, its EBITDA margin of negative 31.07% is lower than the industry average of 2.72%.
NVAX's grants revenue decreased 26.8% year-over-year to $69.57 million for the fourth quarter that ended December 31, 2022. Its total current assets came in at $1.70 billion for the period that ended December 31, 2022, compared to $2.16 billion for the period that ended December 31, 2021.
Also, its total assets came in at $2.26 billion, compared to $2.58 billion for the same period the prior year.
Street expects NVAX's revenue is expected to fall 54.7% year-over-year to $897.60 million in 2023. Its EPS to remain negative $6.18 in 2023 The stock has lost 86.5% over the past year to close the last trading session at $8.46.
NVAX has an overall D rating, equating to a Sell in our POWR Ratings system.
It has an F grade for Stability, Sentiment, and Momentum. It is ranked #196 in the same industry. We have also rated NVAX for Growth, Value, and Quality. Get all the NVAX ratings here.
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DNA shares were unchanged in premarket trading Monday. Year-to-date, DNA has declined -20.12%, versus a 6.82% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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