Should I buy Novacyt shares for the long term or are they risky now?

A £3,000 investment in January 2020 would have inflated to just over £257,000 with Novacyt. But the stock’s been volatile lately, so would I buy it now?

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Medical diagnostics company Novacyt (LSE: NCYT) has been one of the stock market darlings of 2020. The company scored some big contracts to supply Covid-19 test kits, causing revenue and profits to shoot higher during the year.

Novacyt shares exploded higher in 2020

But the firm’s business success is nothing compared to the success of the stock. At the beginning of January, the share price was around 14p, but it peaked near 1,200p in October. That move must rank as perhaps the fastest multi-bagging investment ever experienced by some lucky (or perhaps prescient) shareholders. Indeed, a £3,000 investment in January would have inflated to just over £257,000.

I can only dream about returns like that from my investments. But it would have been tricky for any investor to have nailed down profits that big in percentage terms with Novacyt. And that’s because the share price has been choppy lately. As I write, it’s down to 780p. And every vaccine announcement from the likes of Pfizer and Moderna has hammered the shares.

To give some indication of the volatility shareholders are enduring now, the first announcement from Pfizer slammed Novacyt down by around 50% over two trading days! Luckily, it bounced back a fair way and has been up and down since. However, it seems to me that the overriding trend may be down.

Nevertheless, the news flowing from Novacyt remains positive and the directors appear to think the company has a bright future. And although the Covid-19 testing party remains far from over, the company is developing other business lines too. A few of the directors even backed their confidence by buying shares in the company in the open market after the price had fallen.

Undeniable headwinds

However, a big part of the company’s recent operational success is down to the pandemic. So, it’s difficult to view progress with vaccines as anything other than a headwind for the business in the short-to-medium term. But I acknowledge that, even with a vaccine, there’ll be a need for ongoing testing.

However, one of the biggest risks for shareholders now, as I see it, is the potential for more vaccine announcements in the weeks and months ahead. After all, many companies around the world are throwing resources at the challenge of Covid-19 vaccine development.

Another problem with Novacyt, for me, is the share has been extremely popular in the investing community. Indeed, share-focused internet bulletin boards have seen frenetic activity relating to the prospects of Novacyt.

And I view that situation as a contraindicator when it comes to appraising the attractions of the stock now. Indeed, with so much investor interest, there’s a good chance the company may be more than fully valued in respect of its longer-term growth prospects.

Novacyt could, at some point, make a decent long-term investment for me. But I’ll wait for a much lower entry point before buying the stock because I think it’s likely to go down first. Indeed, without Covid-19, I’m sure the valuation would be too high now. And I’m hoping very much for a world without a Covid-19 pandemic as soon as possible!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Kevin Godbold has no position in 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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