The Avacta share price has jumped! Should I buy the shares?

The Avacta share price has been a fantastic investment to own over the past 12 months, but will this trend continue?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

The Avacta (LSE: AVCT) share price has climbed in value since the beginning of 2021. Shares in the firm are up 56% year-to-date and 560% over the past 12 months. The stock has added to this performance in early deals today, rising by more than 25%.

However, past performance should never be used as an indicator of future potential. So with that in mind, I’m going to take a closer look at the business to establish if the Avacta share price is an interactive investment at current levels, or if the market has become overexcited.

Pandemic boom 

Avacta is one of the handful of public businesses developing new tests and treatments to help the UK’s fight against coronavirus. The company has been developing a rapid test to detect Covid-19. Today, announced it had received initial data for its SARS-CoV-2 rapid antigen test from ongoing studies in Europe and the UK.

According to the company’s press release, the results showed “excellent performance of the test in identifying patients with an infectious viral load and no false positive results.

This update is incredibly positive for the group. However, it’s worth noting that these results were achieved with a relatively small sample. The company claimed a “clinical sensitivity of 96.7%” from just 30 positive samples in its statement. Some 26 samples were identified as negative. 

The organisation is now seeking a full clinical validation with a larger number of patient samples. It aims to bring the test to market in Europe around the end of the first quarter of this year. 

Based on the above, it seems to me as if the Avacta share price may have gotten ahead of itself. Even in the most optimistic scenario, analysts are forecasting less than £8m of revenues for the business in 2021. That compares to its current market capitalisation of £400m.

If the testing product doesn’t achieve full clinical validation in the next few months, these projections may turn out to be far too optimistic. In this worst-case scenario, the stock looks incredibly overvalued at current levels.  

Avacta share price potential 

Still, there’s no denying the company’s potential is tremendous. The government has stated rapid testing will be essential to unlocking the UK economy. And it’s not just the UK market where the demand for testing products is growing. All over the world countries are trying to control the coronavirus, and testing programmes are the most efficient way of achieving this aim. 

Overall, the Avacta share price has performed well over the past 12 months. Unfortunately, it’s impossible to say if it will continue to do so as we advance. There’s already a lot of optimism baked into the firm’s valuation at current levels, and it’s unclear if the business can meet market expectations. As such, I’m not a buyer of the stock today. 

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 assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any of the shares 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.

More on Investing Articles

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

FTSE shares: how £500 a month could put investors on the path to becoming millionaires

By consistently investing in FTSE shares, investors can accelerate their journey to millionaire status even if they only have £500…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

£10 a day invested in cheap LSE shares could unlock a second income of £27,125 a year!

Believe it or not, investing just £10 a day can potentially unlock high returns and an attractive passive income stream…

Read more »

Young Asian woman holding a cup of takeaway coffee and folders containing paperwork, on her way into the office
Investing Articles

Down 90%, is this growth stock finally worth buying in July?

This burgeoning robotics growth stock's been struggling with mounting losses, but could that soon be about to change? Zaven Boyrazian…

Read more »

Black woman using smartphone at home, watching stock charts.
Investing Articles

Could the Lloyds share price come crashing down?

In 2025, the Lloyds share price has hit heights not seen for a decade. Dr James Fox explores where the…

Read more »

Portrait of pensive bearded senior looking on screen of laptop sitting at table with coffee cup.
Investing Articles

Income shares: how much do I need to invest to earn £500 a month?

With a monthly passive income goal of £500, Zaven Boyrazian breaks down how much he thinks investors need to put…

Read more »

Modern apartments on both side of river Irwell passing through Manchester city centre, UK.
Investing Articles

2 overlooked UK shares to consider for dividends

Paul Summers looks beyond the usual suspects from the FTSE 100 and highlights two under-the-radar UK shares offering great passive…

Read more »

Pink 3D image of the numbers '2025' growing in size
Investing Articles

Prediction: in 12 months the hated Ocado share price could turn £10,000 into…

Harvey Jones is desperate for some good news about the beleaguered Ocado share price, and he finally appears to have…

Read more »

A young Asian woman holding up her index finger
Investing Articles

Up 132% in 2025! Is this one of the best growth shares to buy today?

Looking for the best shares to buy now? This soaring mining enterprise has dominated in 2025, beating the FTSE 100…

Read more »