Invitee Shares Soar 277% in One Day: Time to Buy?


For specialist in medical genetics Guestsit is (NYSE: NVTA) oppressed investors, the company’s second quarter earnings release meant a lot. An 85% drop in shares since the start of the year can give a financial report a sense of success or failure.

As always, whether the results were a hit or a flop, it’s in the eye of the beholder. Still, there were undeniable highlights in the data and, perhaps, a reason for Invitee shareholders to hold a relief rally.

The ensuing buying spree, however, seems overblown and may be a function of the near-term mid-2022 recovery rather than the perceived improvement in Invitee’s finances.

Several good points, and one major problem

CEO Ken Knight touted “improvements in several key metrics” during the second quarter, and there’s enough data to support that conclusion. Knight highlighted Invitee’s adjusted gross margin (40.1% vs. 36.6% in Q1), adjusted operating expenses (146% of revenue vs. 169% in Q1) and cash burn ($147 milliondown $50 million).

The CEO could also have pointed to quarterly revenue of $136.6 million, up 17.5% year-over-year and nearly in line with analysts’ consensus estimate. However, Knight probably wasn’t eager to mention Invitee’s net loss of $2.5 billion (or $10.87 per share), a stark result compared to the net profit of $133.8 million he a year ago ($0.66 per share).

In addition to “impairment of intangible and indefinite-lived assets of $34.8 million,” the company said its large quarterly loss included “a full impairment of goodwill of $2 $.3 billion, which resulted from a significant and sustained decline in share price and associated market capitalization and financial performance below expectations” – probably not what long-term investors at Invitee wanted to hear.

Maybe a meme, but definitely extreme

Still, Invitee’s swing to a net loss was obviously not a deal breaker for at least some traders. The day after the earnings release, the stock catapulted 276%, landing at a previously unimaginable $8.63. The CEO’s comments on “improving several key metrics” were duly noted, but a stock price move of this magnitude is hard to justify on data alone.

To be sure, there has also been recent positive news as the National Comprehensive Cancer Network (NCCN) updated its guidelines, endorsing the universal availability of genetic testing for all patients who have been diagnosed with colorectal cancer. Previous NCCN testing criteria were limited to certain age groups and cancer types. The new guidelines, according to Robert Nussbaum, Invitee’s chief medical officer, “will help identify more patients and their family members who may benefit from genetic evaluation.”

Fair enough, and the NCCN announcement came shortly before Invitee’s quarterly earnings report. So there could have been a positive punch, making traders forgive Invitee’s swing to a net loss. Still, a 276% jump in one day just doesn’t seem fair or reasonable.

Could traders have been swept away by a meme trade revival? The meme hypothesis was not entirely confirmed, but it could have been somewhat supported as the following trading day, Invitae plunged 47% to $4.51. Just maybe, there’s a lesson here for prize hunters and marching riders.

As the market comes to its senses, investors would be well advised to appreciate Invitee’s “improvements in several key metrics” from a safe distance.

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David Moadel has no position in the stocks mentioned. The Motley Fool holds positions and recommends Invitae. The Motley Fool has a disclosure policy.

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