AIM-listed Oxford BioDynamics (LSE: OBD) is a stock in demand today. The Oxford BioDynamics share price has jumped 30% as I write.
I am cautious before buying shares whose prices show that sharp a rise in one go. This is especially true for small-capitalisation companies (it has a market cap of £64m). The risks from investing in small caps can be higher, since they are often relatively new companies with limited track records, so I think it is essential to look at the company carefully.
Why did the Oxford BioDynamics share price rise?
The Oxford BioDynamics share price rose on the launch of its Covid-19 severity test in the US. The test is useful in predicting the immune response to Sars-Cov-2, which is one of the coronavirus variants. It is distinct from available Covid-19 tests that can only detect infection if it exists or has existed in the past in the system.
It uses its proprietary EpiSwitch services for this, which study epigenetic biomarkers. Epigenetics tells us how genes work in response to changes in the environment and lifestyle.
Through its services, the company is able to assist pharmaceutical companies developing more cost effective and personalised treatment plans.
A growing biomarkers market
It estimates that the value of the global biomarkers market to be at $24bn and growing at a compounded annual growth rate (CAGR) of 14%. This sounds promising. It has also been generating revenues for a while now, indicating some success in tapping into the market.
The last two years have seen a decline in revenues, though. Even if we ignore 2020’s performance, considering that the pandemic set business back pretty much across the board, that still does leave us with its weakening 2019 performance.
As is often the case in companies where significant product and market development is still ongoing, it is loss-making. I am not sure how long it will take to turn around. I normally like to buy profitable stocks and, if not, their revenue growth should then be substantial. That is not the case here.
Volatile share price trends
Moreover, the latest share price increase might not be sustained either. The Oxford BioDynamics share price has a history of volatility. Its share price has also seen a broad decline over the past four years. If I have a two-to-three year investing horizon, it is a risky investment from that perspective.
The upshot for the Oxford BioDynamics share price
Still, its launch in the US is an important development, when coronavirus variants could be the next big threat on the horizon. Considering that the pandemic is still around, the timing of the treatment could make Oxford BioDynamics a more important player in the biomarkers market than before.
Like in the case of other emerging industries’ stocks, however, I would invest only what I can afford to lose. And even then, I would wait for a more opportune time to buy when its price has declined from its current levels.