Natera Inc. (NTRA) is a world pioneer in cell-free DNA testing, focusing on cancer, women's health, and organ health. It has a collaboration agreement with BGI Genomics Co., Ltd. to develop, produce, and market NGS-based genetic diagnostic assays and a collaboration agreement with Foundation Medicine, Inc. to develop and sell personalized circulating tumor DNA monitoring kits.
The company’s shares have plunged 67.7% over the past year and 59.6% year-to-date to close yesterday’s trading session at $37.72. In addition, the stock is currently trading 70.8% below its 52-week high of $129.09, which it hit on September 23, 2021.
The company’s poor bottom-line performance and ongoing lawsuit related to its efficacy of tests have raised investors’ concerns regarding its prospects. In addition, on June 23, CFO Michael Burkes Brophy sold 427 shares of the company's stock, making its near-term prospects questionable.
Here's what could shape NTRA's performance in the near term:
Lawsuit
In May, law firm Kessler Topaz Meltzer & Check LLP said that it had filed a securities class action complaint on behalf of stockholders against pharmaceutical manufacturer Natera Inc. According to the law firm, the primary reason for the case filed in the United States District Court for the Western District of Texas was that NTRA, which specializes in genetic testing and diagnostics, gave inaccurate information regarding the efficacy of its tests. "Natera said that its tests are much more reliable than it appears they really are," Kessler Topaz stated in the statement.
In March, CareDx, Inc. (CDNA) won its false advertising case against NTRA after a jury determined that Natera intentionally and recklessly misled the transplant community by engaging in false advertising in the promotion and marketing of its Prospera kidney transplant rejection assessment test. CareDx was granted $44.9 million in monetary damages: $21.2 million in compensatory damages and $23.7 million in punitive damages.
Inadequate Financials
NTRA's revenue increased 27.5% year-over-year to $194.13 million for the first quarter ended March 31, 2022. However, its loss from operations grew 117.6% from the year-ago value to $137.13 million. The company’s net loss increased 117.1% from the prior-year quarter to $138.59 million, while its loss per share amounted to $1.45.
Negative Profit Margins
NTRA's trailing-12-month gross profit margin of 46.8% is 15.6% lower than the industry average of 33.4%. Also, its trailing-12-month ROA, ROE, and net income margin are negative 47.7%, 119.5%, and 81.9%, respectively. Moreover, its trailing-12-month negative EBITDA margin of 79.7% compares to its industry average of 3.99%.
POWR Ratings Reflect Bleak Outlook
NTRA has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. NTRA has a D for Growth and Quality. The company’s poor profitability and lackluster financials are consistent with the Growth and Quality grade.
Of the 53 stocks in the D-rated Medical -Diagnostics/Research industry, NTRA is ranked #48.
Beyond what I've stated above, you can view NTRA ratings for Value, Stability, Momentum, and Sentiment here.
Bottom Line
Despite witnessing stable revenue growth in the last reported quarter, NTRA’s worsening bottom-line performance is concerning. Analysts expect its EPS to decline 12.9% in the current quarter ending June 2022 and 12.7% in the current fiscal year. Moreover, given that the ongoing lawsuit against the company could further weigh on its price performance, we think the stock is best avoided now.
How Does Natera Inc. (NTRA) Stack Up Against its Peers?
While NTRA has an overall D rating, one might want to consider its industry peers, Global Cord Blood Corporation (CO), Qiagen N.V. (QGEN), and Agilent Technologies Inc. (A), which have an overall A (Strong Buy) rating.
NTRA shares were unchanged in premarket trading Wednesday. Year-to-date, NTRA has declined -59.61%, versus a -19.26% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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