The Motley Fool

Why did the Avacta share price crash in 2021?

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.

A stock price graph showing declines, possibly in FTSE 100
Image source: Getty Images.

The Avacta (LSE:AVCT) share price has had a pretty rough time recently. Despite reaching an all-time high earlier this year, the stock is down almost 50% in the last three months, wiping out all of the gains made over the previous year. But what caused this growth stock to suddenly make a U-turn? And is this a buying opportunity for my portfolio? Let’s take a closer look.

Progress seen

Despite what the Avacta share price might suggest, the underlying business seems to be making good progress. The latest results from clinical trials show that Avacta’s lateral flow antigen tests can successfully detect the Delta variant of Covid-19. This is particularly exciting as competing tests seems to have a low detection rate for this strain of the virus.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Combining this milestone with the newly signed distribution agreement with Calibre Scientific, it seems Avacta’s revenue growth should be able to continue meeting expectations. Needless to say, that’s fantastic news for this biotech business. So why did the share price crash?

The Avacta share price has its risks

The fall of the Avacta share price

I’ve previously looked at this company and highlighted that the stock was carrying an exceptionally lofty valuation. Shareholder expectations were unreasonably high, in my opinion. And unsurprisingly, at the first sign of trouble, many jumped ship.

Despite efforts to achieve a CE Mark for its antigen testing kit, Avacta could not secure it in May as initially planned. Without this regulatory approval, its products cannot be used throughout Europe. And signing a distribution agreement for a product that can’t be distributed didn’t exactly entice investors. What followed was just over two months of decline for the Avacta share price.

What’s next?

In mid-July, the firm finally received an ISO 13485 certification to use its Affimer reagents in its lateral flow tests. As a result, a CE Mark was transferred to the company allowing its tests to be used by professionals throughout the UK and Europe. That’s one of the main reasons why the share price has started to stabilise. After all, with alternative lateral flow tests being far less effective, the company now has an enormous growth opportunity before it.

That might be an indicator of a buying opportunity for this growth stock. However, upon closer inspection, I’m still not tempted. Why? Because despite the recent crash, the Avacta share price still looks too expensive. Today, the company has a market capitalisation of just over £320m. And yet total revenue for the year is expected to be only around £4.3m with profits nowhere in sight. That places the price-to-sales ratio at an enormous value of 74!

Therefore I’m keeping Avacta on my watchlist for now. As promising as this business and its future potential may be, I believe there are far cheaper growth opportunities to be found elsewhere.

Opportunities such as...

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story.

In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Zaven Boyrazian 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.