Down 63% in 2024, what’s going on with the Avacta (AVCT) share price?

2024 has been a difficult year for many companies in the biotechnology sector, with the AVCT share price down heavily. But is there potential here?

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Pharmaceutical developer Avacta Group (LSE:AVCT), also known as AVCT, is one of the UK’s leading diagnostics and cancer therapies, but has seen its share price plummet by a staggering 63% in 2024. This dramatic decline has left many investors wondering what has triggered this downward spiral in the AVCT share price. So is there more pain ahead, or is there a potential opportunity here?

What went wrong?

Many of us will know the company from the development of Covid-19 lateral flow tests. However, since then, the share price has been incredibly volatile. Since the peak in 2020, when shares hit £2.74 and the market cap was £340m, the value of the company has sunk to £154m.

Several factors seem to be at play here. Many are commonplace in the biotech sector, but I still have a few major concerns.

Avacta, like many other pre-revenue companies in the biotech sector, has yet to turn a profit. The company’s earnings per share are forecasted to decline in the coming years, which has dampened investor confidence.

The firm boasts impressive revenue growth of 34% over the past five years. However, it seems this growth might be falling short of lofty investor expectations. With enormous rallies in previous years this disappointment has naturally led to a sell-off, driving the share price down.

Business has also been hampered by difficulties in obtaining regulatory approvals for new diagnostics and therapies. Delays in securing the rights for a new antigen testing kit in May 2023 further eroded investor confidence.

The biggest red flag for me is the dilution of shares in the company, with 31% more shares outstanding than a year ago. In February 2024, the business raised funds through a share sale at a significantly discounted price. To me, this sounds like an action the company wouldn’t do unless it really had to, sending very worrying signals.

Is there hope?

While the recent performance has been undeniably bleak, there are some positive signs for Avacta. The company finally received the ISO 13485 certification last year, allowing its tests to be used in Europe. This could lead to increased sales and potentially a turnaround in fortunes.

When compared to others in the sector, the price-to-sales (P/S) ratio of 6.6 times is well below the average of 10.2 times. There is clearly a future in the technology being used here. So if a company can grow sustainably, and build a market share large enough, it could well be a winner in the long term.

Overall

The share price decline is a complex issue, requiring a decent amount of technical knowledge of the sector. The short-term outlook might seem uncertain, but the company’s progress in regulatory approvals and its potential for future growth could represent a good opportunity for patient investors. However, I think there are less complex and more lucrative investments out there, so I’ll be staying well clear for now.

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.

Gordon Best 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.

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