Oxford Nanopore Technologies (LSE: ONT) stock was the biggest riser in the FTSE 250 index yesterday (13 January). Shares of the gene-sequencing firm rose 10% then another 5% today to reach 149p.
However, the stock is still down more than 75% since listing in late 2021. Here, I’ll take a look at what has caused the recent jump and assess whether it’s a good fit for my portfolio.
Encouraging update
For those unfamiliar, Oxford Nanopore makes cutting-edge DNA/RNA sequencing devices that enable real-time analysis of genetic material. They’re used for scientific research across the healthcare and life sciences industries.
Yesterday, the firm released a full-year trading update. In this, we learnt that underlying revenue growth in the second half was approximately 34% at constant currency. This was an acceleration over the first half, enabling the company to achieve £183m in revenue, in line with market expectations.
That would represent year-on-year growth of 11% on a constant currency basis. That’s not bad considering the overall life sciences sector faced challenging conditions in 2024.
CEO Gordon Sanghera commented: “Looking beyond 2025, our highly differentiated platform and deep innovation pipeline coupled with strengthened commercial and operational capabilities combined with a strong balance sheet, position us well to deliver long-term, sustainable, above-market growth.”
Encouragingly, the gross margin is set to be slightly above the previously expected 57%. And management anticipates the gross margin reaching 62% by 2027, with revenue growing at a compound annual growth rate of more than 30% between 2024 and that date. It also reaffirmed a target of adjusted EBITDA breakeven in 2027.
No profits yet
Of course, an ambition to reach adjusted EBITDA breakeven in two years indicates that the firm is still deeply unprofitable. Indeed, it doesn’t expect to become cash flow positive until at least 2028.
Clearly, the losses add risk to the investment case. And they almost certainly explain why the share price has struggled since late 2021 when the era of near-0% interest rates came to an end.
We won’t get the full-year earnings until 4 March. Looking at the forecasts though, I’m seeing losses above £100m for both last year and this one.
On the plus side, the firm ended 2024 with £403m in cash, so remains well-capitalised. It should be capable of becoming cash flow positive with the resources at hand. If it can do so, while hitting its revenue growth targets, the share price could end up much higher than today’s 149p.
Should I invest?
Oxford Nanopore’s products are based on innovative technology and it appears to be taking market share during a challenging time. The more devices it sells, the more recurring revenue it gets from consumables and software services.
With a modest market cap of £1.4bn, the firm could become a takeover target. However, it can be dangerous to invest on the basis that a business might be acquired at a higher price.
Recently, I’ve made a hash of picking stocks in the healthcare sector. My holding in Moderna continues to take a battering (down another 16% yesterday), while medical device firm Creo Medical has unperformed too. Even Novo Nordisk is struggling lately.
With Oxford Nanopore stock trading at a premium 7.6 times sales, I’m going to give this one a miss for now.
