I noticed a minor explosion (a good one) down the bottom of my portfolio last week. It was Angle (LSE: AGL), a penny stock that’s a small holding of mine.
On 4 January, it rocketed 137% in a single day and ended the week 121% higher than it started it.
What news caused this sudden rise? And should I now be scooping up more shares at 24p? Let’s find out.
What was Angle getting right?
Angle is a liquid biopsy company, which means it specialises in cancer diagnostics.
Through its Parsortix cell-separation system, the company has developed a solution for real-time analysis of both ctDNA (fragments of DNA released mainly by dying cancer cells) and CTCs (living cancer cells) from a single tube of patient blood.
Last week, it announced that from 47 patient samples, previously unidentified mutations were discovered in 70% of breast cancer, 70% of lung cancer and 60% of ovarian cancer samples.
The firm said this “gives a completely new insight into cancer clonal evolution not currently available to researchers or oncologists.” This breakthrough news is what caused the shares to rocket higher.
Now what?
The company’s CEO said these cancer results “may turn out to be groundbreaking.”
This is because a patient’s cancer changes as time goes on, meaning the original tissue biopsy essentially becomes out of date. This liquid biopsy technology provides information on both dead and living cancer cells, meaning clinicians can potentially see how the cancer is evolving.
In turn, this should inform better decision-making on the appropriate treatments.
Angle is now engaging with genetics juggernaut Illumina and leading oncologists to seek their input. It said the “early stage responses have been encouraging.”
Some risks to consider
While this is encouraging, I’d point out that the firm has been diluting shareholders to raise funds on AIM for nearly 20 years. That’s a key risk.
Of course, one could argue this is the point of capital markets (to provide capital). But that’s a long time and the stock is down 84% over that period.
However, in 2022, Angle received US Food and Drug Administration (FDA) clearance for its Parsortix system. So the firm appears ready for commercial lift-off and reckons it has enough cash to last until the second quarter of 2025.
The shares are trading on a price-to-sales (P/S) ratio of 34, which seems excessive. But that valuation should quickly come down, with 2023’s forecast revenue of £3m expected to treble to £9m next year.
While there aren’t expected to be profits for some time, sales should accelerate meaningfully as the global liquid biopsy market grows. According to Precedence Research, it’s projected to surpass $18.2bn by 2032, up from $4.7bn in 2022.
Of course, this market opportunity isn’t a secret, meaning there’s plenty of competition, notably from Illumina-backed Grail.
Will I buy more shares?
With its novel technology and small £62bn market cap, I see Angle as a potentially tasty morsel for a bigger fish.
However, I don’t invest on the assumption that a firm may be taken over. The shares could always be acquired for a lower price than I paid.
On balance, I’m keeping my small holding as it is for now. But I’m now watching this penny stock like a hawk.
