The Avacta share price (AVCT) has climbed 1,400%. Here’s what I’d do now

Companies involved in Covid-19 testing have done well during the pandemic — and that includes Avacta Group (LSE: AVCT). The company released an update on its SARS-CoV-2 antigen lateral flow test on Monday, and the shares picked up 4% on the day. But that’s only a small part of the story — the Avacta share price has climbed a staggering 1,400% since the beginning of 2020.

We do need to see that in perspective, mind. Before Covid-19 turned up, there obviously wasn’t much call for Covid-19 testing. And Avacta was getting along with its cancer therapies and diagnostics. So a big boost to the Avacta share price since then is perhaps not surprising. But can it be sustained, and is there more growth to come?

First, let’s look at the latest news. The company mentions “recently announced data from a clinical study on 98 positive COVID-19 samples that demonstrate excellent performance in identifying the SARS-CoV-2 virus across a broad range of viral loads“. Avacta goes on to say it “expects to receive confirmation of the registration of the AffiDX in-vitro diagnostic device in the coming days, which will allow the group to immediately place the test on the market“.

Better than the competition

Chief executive Dr Alastair Smith added that, compared to two other commercially available lateral flow antigen tests, “the AffiDX test had better clinical sensitivity across the range of Ct values tested and, in particular, at lower viral loads“.

I take two immediate thoughts from that. The first is that the Avacta share price has gone on its sky-high, 1,000%+, ride even before the company had a saleable Covid-19 test. Wow! But secondly, if the Avacta test works better at lower viral loads, it could turn out to be very important indeed. Current lateral flow tests are not as accurate as laboratory tests that can take up to a couple of days to perform.

But where will the Avacta Group share price go for the rest of 2021 and beyond? Fellow Motley Fool writer Andy Ross recently suggested we could see another strong run in May. He could be right. I wouldn’t be surprised to see another leap upwards when the AffiDX test gets its expected approval. So would I buy the shares now?

Well, if ever there was a case where ‘past performance is no guide to future performance’ was apt, this is surely it. And I would not invest based solely on the short-term performance of anything. Saying that, there’s a good chance that Covid-19 will be with us long-term, just like influenza. And I can see demand for Covid-19 testing continuing for many more years.

Avacta share price valuation

But there’s another thing that puts me off high-flying growth shares like this. Avacta reported an operating loss in 2020, largely due to R&D spend. That makes it impossible for me to put any kind of rational valuation on the company. Is today’s price good value compared to future profits? Or is the Avacta share price pumped up much higher than it’s worth?

I have no idea, and I’ll keep away from the risk that comes with such uncertainty. But for any brave investors taking the chance, I wish them well.