From here, can it really go lower?
NVTA priced 17M shares on top of a diluted share count of 108M at $9 versus a closing price of $11 and a YTD peak of $28 to raise $160M. The company came into the deal with $391M in cash, $312M of long- term debt, and a plan to burn more than $150M in 2020. The company also suspended guidance for 2020 due to COVID-19. We have been bearish on NVTA volume and inorganic growth strategy since initiating the short in 2019, but COVID-19 has been a key catalyst for the downside.
At $1.1B in enterprise value, it is worth having a discussion about the downside from here. Then again, finding the upside scenario for a money losing illiquid roll-up with no transparency into organic growth is a good question too. So far, 4 analysts have cut their estimates and 2 have increased them while the mean revenue estimate for 2020 revenue has fallen by -1.7% and $5.3M respectively. There is a future scenario where NVTA actually does become the Amazon of genetic testing, although we think that is only possible after a significant shake out of the industry.
In the preliminary prospectus, NVTA states "Non-GAAP cash burn is expected to be less than $100.0 million, or less than $68.0 million when excluding $32.0 million for cash paid in our acquisition of Diploid." We don't believe that on the other side of COVID-19 investors will be willing to support a growth model built on serial acquisitions. The stock is "cheap" now, trading at 3.3X EV/Sales, but before rescinding guidance, consensus was assuming ($255.5M) in EBITDA for 2020.
The best question these days seems to be "Who's going to pay for that?" To find a price for shares today, we need to know if they make it to profitability with the assets they have, but we suspect its lower from here.
