Genetic testing, a critical medical procedure, identifies alterations in genes, chromosomes, or proteins to confirm or rule out genetic conditions and assess an individual's risk of developing or passing on such disorders. This market is booming, with the global genetic testing market projected to grow from $8.84 billion in 2023 to an estimated $64.73 billion by 2033, driven by technological advancements, increased awareness, and expanding applications. The U.S. genomics market alone is set to reach around $43.81 billion by 2032, growing at a CAGR of 19.4%.
Thus, it could be opportune to invest in fundamentally sound biotech stocks. Let’s determine whether investors should place their bets on Veracyte, Inc. (VCYT) in genomic diagnostics.
VCYT is a leading diagnostics company that aims to revolutionize cancer care globally through innovative diagnostics. By leveraging a powerful platform of genomic data, bioinformatics, and AI, Veracyte provides clinicians with vital insights needed for accurate cancer diagnosis and treatment guidance.
The company's first-quarter earnings for 2024 painted a promising picture, with revenue of $96.84 million, exceeding Wall Street expectations of $93.36 million. Its test volume rose by 16% year-over-year to 33,424.
One of Veracyte's significant achievements is the Decipher Prostate Genomic Classifier, which received top-tier recognition in the updated NCCN prostate cancer guidelines. Additionally, VCYT's acquisition of C2i Genomics has broadened its capabilities into minimal residual disease (MRD) testing, marking a significant expansion in its product offerings.
Marc Stapley, Veracyte’s CEO, said, “We had a strong start to 2024, driven by robust growth from our market-leading Decipher Prostate and Afirma tests. We executed upon our strategies to further penetrate these markets by expanding our clinical evidence, and, for Decipher, securing enhanced status in guidelines while also achieving a key commercial reimbursement milestone.”
Looking ahead, VCYT has raised its full-year 2024 revenue guidance to $402 million to $410 million, representing a year-over-year growth of 11% to 14% and testing growth of 15% to 18%. This optimism is supported by their expectations of ending the year with cash, cash equivalents, and short-term investments ranging from $236 million to $240 million.
Despite these advancements, shares of VCYT have plunged 17.4% over the past six months and 21.9% year-to-date to close the last trading session at $21.47. However, the stock has shown a recent uptick, gaining 4.1% over the past three months.
Let’s look at factors that could influence VCYT’s performance in the upcoming months.
Mixed Financial Performance
For the first quarter that ended March 31, 2024, VCYT’s total revenue increased 17.5% year-over-year to $96.84 million. The company’s testing revenue increased by 25% to $90.30 million, up from $72.40 million in the same period last year, primarily driven by the strong performance of the Decipher Prostate and Afirma tests.
Its non-GAAP income from operations came in at $3.83 million, compared to the prior-year quarter’s loss of $1.75 million. The quarter’s net loss narrowed 76.9% and 81.8% year-over-year to $1.86 million and $0.02 per share, respectively.
However, VCVY’s net cash used in operating activities for the quarter increased to $8.97 million from the year-ago value of $2.17 million. Additionally, as of March 31, 2024, VCYT’s cash and cash equivalents stood at $209.19 million, compared to $216.45 million as of December 31, 2023.
Mixed Analyst Expectations
Analysts expect VCYT’s revenue for the second quarter (ended June 2024) to grow 10.7% year-over-year to $99.99 million. However, the company is expected to post a loss per share of $0.01 in the same quarter.
Similarly, for the ongoing quarter (ending September 2024), VCYT’s revenue is expected to increase 12% year-over-year to $100.95 million. On the contrary, its loss per share for the quarter is estimated to be $0.03.
Nonetheless, for the fiscal year ending December 2024, Street expects VCYT’s revenue to grow 12.3% from the prior year to $405.60 million, while its EPS is expected to be $0.01.
Stretched Valuation
In terms of forward non-GAAP P/E, VCYT is trading at 1717.60x, significantly higher than the industry average of 18.81x. The stock’s forward EV/Sales and Price/Sales multiples of 3.57 and 4.05 are 8.2% and 14.3% above the respective industry averages of 3.30 and 3.54.
Likewise, its forward EV/EBITDA of 50.88x is 297.6% higher than the industry average of 12.80x. Moreover, the stock’s forward Price/Cash Flow ratio of 93.35x compares to the industry average of 14.94x.
Mixed Profitability
VCYT’s trailing-12-month gross profit margin of 67.69% is 17.7% higher than the 57.48% industry average. Also, the stock’s trailing-12-month levered FCF margin of 9.75% is considerably higher than the industry average of 1.26%.
However, its trailing-12-month asset turnover ratio of 0.32x is 21.6% lower than the industry average of 0.41x. Likewise, the stock’s trailing-12-month EBITDA margin of 5.25% is 9.6% lower than the industry average of 5.81%.
POWR Ratings Reflect Uncertainty
VCYT’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, which translates to Neutral in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. VCYT has a C grade for Sentiment, which is consistent with mixed analyst estimates.
The stock also has a C grade for Quality, justified by its mixed profitability. Moreover, with a five-year beta of 1.64, the stock has earned a grade C for Stability.
Within the Biotech industry, VCYT is ranked #60 out of 336 stocks.
Beyond what I have stated above, we have also given VCYT grades for Value, Momentum, and Quality. Get all VCYT ratings here.
Bottom Line
VCYT exceeded analysts’ revenue and earnings estimates in the first quarter of 2024, buoyed by strategic market expansion and robust clinical advancements. Despite significant improvement from the previous year's losses, the company continues to face a negative bottom line.
As Veracyte navigates the dynamic landscape of genomic diagnostics, it’s crucial to assess whether its innovative approach and strong market position make it a smart bet for investors looking to capitalize on the growth of genetic testing.
Given VCT’s elevated valuation and uncertain near-term outlook, waiting for a better entry point in this stock seems wise now.
How Does Veracyte, Inc. (VCYT) Stack Up Against Its Peers?
While VCYT has an overall grade of C, equating to a Neutral rating, you may check out these A (Strong Buy) rated stocks within the Biotech industry: Gilead Sciences, Inc. (GILD), Nippon Shinyaku Co., Ltd. (NPPNY), and Sino Biopharmaceutical Limited (SBHMY).
To explore more A and B-rated biotech stocks, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
VCYT shares were trading at $21.47 per share on Friday afternoon, down $0.00 (0.00%). Year-to-date, VCYT has declined -21.96%, versus a 17.16% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
Is Veracyte a Smart Bet in Genomic Diagnostics? StockNews.com
