Is it too late to buy Avacta shares?

Avacta shares have surged this year, but could the stock have a growth potential left after its recent market-smashing performance? It looks likely.

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As the rest of the stock market crashed at the end of March, Avacta (LSE: AVCT) shares surged as investors rushed to buy part of this growth story. Indeed, since the beginning of the year, shares in the company have risen by more than 700%.

And the company’s growth may be only just getting started.

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Avacta shares: Positive newsflow

Avacta shares took off at the beginning of April when the company announced that it had entered into an agreement with Cytiva. The two organisations agreed to work together to manufacture an “affimer-based point-of-care rapid test” for coronavirus.

At the end of April, management provided a further update on this partnership. It informed investors the programme was running ahead of schedule, and Avacta was making good progress on the development of the test.

The organisation also revealed it owned all of the intellectual property and commercial rights to the test. It was in discussions with several other global diagnostic companies to increase production.

Since then, the company has announced further positive updates. The most recent of which was a distribution agreement with Medusa19 Limited for direct-to-consumer sales of a saliva-based rapid test for the Covid-19 antigen. Avacta shares reacted positively to this update. 

Clearly, the demand for these tests is high. Government’s around the world are pinning their hopes on mass testing regimes to get countries back to work after the coronavirus crisis. They’re going to need a massive and continuous supply of tests to do that.

Avacta is just one of the hundreds of companies developing tests for this market.

Other products

Unfortunately, it’s difficult to tell at this stage if the tests will produce a substantial earnings stream and help Avacta shares. The company has a big market, but many other corporations are competing for the same market share.

But the coronavirus tests aren’t the only strings on Avacta’s bow. Last year, the biotherapeutics business signed several large agreements with significant partners.

One of these was a therapeutics development partnership and licensing agreement with LG Chem Life Sciences. Management thinks this deal could generate potential revenues of up to $310m plus royalty payments on future product sales.

However, despite these positive developments, the firm remains loss-making. This makes it challenging to value Avacta shares.

Until we have some more clarity on future deals, as well as testing sales, it’s going to remain difficult to estimate how much the company should be worth.

That said, it’s clear Avacta has enormous potential. As such, it might be worth snapping up a few shares to hold in your portfolio as a high-risk investment.

Owning the company as part of a well-diversified portfolio would allow you to benefit from any potential upside while minimising risk.

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Rupert Hargreaves does not own any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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