Is the Novacyt share price too high? Here’s what you need to know

The Novacyt share price is soaring after a strong H1 earnings announcement. But does that mean you should be buying?

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Novacyt (LSE:NCYT) have been one of the few companies that has actually benefitted during 2020. Coronavirus has provided them with lucrative contracts for providing vital testing kits to the UK government. It’s no wonder that Novacyt shares have risen from 12p in 2019 to over 380p. At one point, the shares hit nearly 500p! And the Novacyt share price is moving up again after releasing a positive trading update this morning.

The results are in

The company has just released its H1 (first two quarters) results, announcing a pre-tax profit of €40.2m in the six months to 30 June, compared with a loss of €2m a year ago. Revenues were also up 900%. Not bad at all! EBITDA also rose – from €0.2m (2019 H1) to just under €50m. Directors believe demand will grow until “at least the first half of 2021” under the tense conditions presented by Covid-19.

The massive demand for PCR testing kits has of course been the main driver for these results and the rapid advancing of the Novacyt share price. And the company is looking to build upon its success. A new avenue is currently being explored in the launch of a diagnostic test designed to tell the difference between Covid-19 and the flu. This is well-timed, coinciding with the approaching winter flu season. So, the company is looking to the future. But what about the shares?

Is the Novacyt share price too high?

Full-year revenues are expected to exceed €150m and EBITDA to exceed €100m. For a company with a market cap of £280m, that’s a pretty strong performance if the guidance does play out as expected. But we must remember that 2020 has been an exceptional year and a very fortunate one for Novacyt. In 2019, the company recorded a net loss of £6.5m. In fact, 2020 will be the first year that will show any profits. If the Covid-19 threat dwindles (and that’s a big if), will Novacyt be able to sustain this year’s profitability?

Investors are always looking to the future. Part of the current price of a stock is always a judgement of the company’s future performance. The Novacyt share price is no different. The only way the stock can keep rising is by finding new avenues for profitability – especially in a post-Covid age. One hope is that the global contacts and networks that will be created during the pandemic will provide access to wider markets for other products in the future. The firm has repaid all its outstanding debts as well investing heavily in its inventory. Despite this, it was still left with €19.7m in cash flow as of 30 June.

It’s certainly possible that Novacyt could grow over the next few years into a profitable business that would justify the massive recent share price growth. At the same time, it’s also possible that 2020–21 was a brief period of fortune and the days of profit will disappear as quickly as they arrived. At this stage, in my opinion, you have probably missed the bargain that early 2020 provided.  

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.

Toby Aston has no position in any of the share 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.

More on Investing Articles

Investing Articles

Recently released: October’s small-cap stock recommendation [PREMIUM PICKS]

We believe the UK small-cap market offers a myriad of opportunities across a wide range of different businesses and industries.

Read more »

Investing Articles

Here’s how a Stocks and Shares ISA and Lifetime ISA could supercharge my wealth!

Individual Savings Accounts (ISAs) can help UK share investors take their earnings to the next level. And their importance is…

Read more »

A person holding onto a fan of twenty pound notes
Investing Articles

A high-yield dividend ETF and an investment trust to consider this November!

Investors wanting to boost their passive income could benefit from investigating these high-yield funds and trusts, says Royston Wild.

Read more »

Investing Articles

2 of my favourite, cheap FTSE 100 growth shares this November!

These FTSE 100 growth shares could be great long-term picks to consider, reckons Royston Wild. At current prices he thinks…

Read more »

Investing Articles

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »