Can the Avacta share price keep climbing?

The Avacta share price has seen some explosive growth over the last 12 months but can this momentum continue? Zaven Boyrazian investigates.

| 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.

2020 was a challenging year for many businesses. But for some, like Avacta Group (LSE:AVCT), the pandemic has been a breeding ground for growth opportunities. The Avacta share price since March last year is up by over 1,000%! And in 2021, it has continued its upward trajectory. What’s causing this enormous growth? And is it too late to add this business to my portfolio?

The surging Avacta share price

I’ve previously explored Avacta’s business. But as a quick reminder, it is a young biotech company. The firm focuses primarily on the development and production of diagnostics medicines for cancer immunotherapies. But in 2020, the management team began to leverage its expertise to develop a rapid Covid-19 testing kit. And with a high level of demand, as well as anticipation for such a test during the height of the pandemic, the Avacta share price took off.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

And it seems investor expectations continue to be met. After preliminary results in January last year showed a 96.7% accuracy level, the company just announced that it has received approval from the Medicines & Healthcare products Regulatory Agency (MHRA). Under this approval, the firm can now begin distributing and selling its antigen lateral flow tests within the UK for professional use. This actually makes it the first CE-marked product developed using the company’s Affimer platform that has been brought to market. What’s more, Avacta is also expecting approval from the European Medical Agency within the near future. Thus allowing for commercial distribution in Europe in addition to the UK.

It’s unclear as to how much revenue this newly approved test will generate throughout 2021. But given the continuing demand for rapid Covid-19 tests here in the UK and abroad, this is undoubtedly an encouraging milestone achieved by management. So, I’m not surprised to see the Avacta share price climbing. And if the business can continue to deliver these promising achievements, then I think it’s likely that the stock will continue its upward trajectory.

The risks that lie ahead

Despite the possibility for continued growth in the Avacta share price, there also exists the potential for a rapid decline. The overall valuation of the business is high. In 2020, the firm only generated total revenue of £3.64m. Meanwhile, losses increased to £18.89m. And yet, based on the stock price today, the company is trading at a market capitalisation of around £650m. Even using the most optimistic city analyst revenue forecast of £4.5m for this year, that places the price-to-sales ratio at over 140.

Given this valuation, I think it’s fair to say that the Avacta share price is almost entirely being inflated by shareholder expectations. So far, the management team has been able to deliver. But there is no guarantee that it will be able to continue to do so. Therefore, I wouldn’t be surprised to see some massive levels of price volatility if any problems begin to arise. And given that Avacta operates within the medical industry, the risk is relatively higher than in other sectors.

The Avacta share price has its risks

The bottom line

To me, the business continues to make excellent progress in developing new products and launching them on the market. But, while I do find the company to be an exciting growth opportunity, the Avacta share price is simply too high, in my opinion. Personally, I think there are plenty of other growth opportunities available today at much better prices. Therefore this business is staying on my watch list for now.

Instead, I'm far more interested in this:

One FTSE “Snowball Stock” With Runaway Revenues

Looking for new share ideas?

Grab this FREE report now.

Inside, you discover one FTSE company with a runaway snowball of profits.

From 2015-2019…

  • Revenues increased 38.6%.
  • Its net income went up 19.7 times!
  • Since 2012, revenues from regular users have almost DOUBLED

The opportunity here really is astounding.

In fact, one of its own board members recently snapped up 25,000 shares using their own money...

So why sit on the side lines a minute longer?

You could have the full details on this company right now.

Grab your free report – while it’s online.

Zaven Boyrazian does not own shares in Avacta Group. 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.

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.

More on Investing Articles

Shot of a young Black woman doing some paperwork in a modern office
Investing Articles

4 no-brainer stocks to buy for chunky dividends in July

Jon Smith outlines some of the stocks he's looking to buy for the upcoming month that pay out above average…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Investing Articles

2 beaten-down UK shares I just bought in a heartbeat

UK shares have outperformed other global stocks in recent months. However, here are two that have been beaten down recently…

Read more »

Engineer Project Manager Talks With Scientist working on Computer
Investing Articles

This FTSE stock has defensive traits! Should I buy shares?

Due to the current economic volatility, this Fool is looking for FTSE stocks with defensive capabilities to boost his holdings.

Read more »

Electric cars charging in station
Investing Articles

Lithium stocks could be set to soar! Here’s 1 I like

Lithium stocks are rising in prominence. This Fool delves deeper into this penny stock to see if it could be…

Read more »

Preparing a budget during a pandemic
Investing Articles

With the Jupiter dividend over 11%, should I keep buying?

With the Jupiter dividend yield now north of 11%, should our writer load up on the fund manager's shares?

Read more »

Lady wearing a head scarf looks over pages on company financials
Investing Articles

Am I missing something about Royal Mail shares?

Jon Smith scratches his head at the continued fall in Royal Mail shares and tries to find out what's going…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

This Warren Buffett gamble could return over 20% in the next year

Warren Buffett has loaded up on Activision Blizzard stock, aiming to make a handsome profit in the next 12 months.

Read more »

A beach at sunset where there is an inscription on the sand "Breathe Deeeply".
Investing Articles

IAG shares fall again! Is this stock now too cheap to miss?

IAG shares have not been kind to shareholders this year. And losses were compounded on Thursday amid more bad news.

Read more »