Why Invitae Corporation Sank as Much as 25.5% This Week

What happened

Shares of Invitae Corporation (NYSE: NVTA) sank as much as 25.5% this week, according to data from S&P Global Market Intelligence. Even though the company put out a potentially positive press release, the stock plummeted likely due to a fallout from a recent short squeeze, broad market movements, and a dislike for unprofitable companies in the current market environment.

So what

This week, Invitae put out a press release highlighting the insights Praxis Precision Medicines was getting from Invitae's Citizen platform. The platform enables companies to get medical history data rapidly when running clinical trials, which will hopefully improve drug-making capabilities. Praxis will potentially become a longtime customer of Invitae because of this. When the news was released, Invitae's stock shot up for a brief period on Wednesday. But that jump did not last.

Even though there was some potentially positive news, Invitae's stock plummeted this week for multiple reasons. First, the stock has a high short interest estimated at 17.2%, which means a lot of short sellers are borrowing and selling outstanding shares. This high short interest likely drove a short squeeze on Invitae's stock back in August when shares shot up around 250%. As market participants rationalized, Invitae's share price has come back down to earth, driving the stock lower.

On top of this, the Federal Reserve raised interest rates again this week, up 75 basis points. Higher rates make it more difficult for companies to raise financing, which typically leads investors to favor more conservative and profitable companies. Invitae is neither, burning $700 million in free cash flow over the past 12 months. With less than $1 billion in cash on its balance sheet, Invitae looks like it will need to raise funds too. At higher interest rates, this will be more costly and is likely why shares of the stock continue to sink.

NVTA Free Cash Flow Chart

NVTA Free Cash Flow data by YCharts.

Now what

Shares of Invitae are down 93% over the past year. Yes, you read that right -- 93%. The stock now has a market cap of $568 million, which might make you think it is time to buy the dip and pick up some shares.

But before you do, be sure Invitae has a path to positive cash flow. Because right now the company is burning a ton of cash, which could lead to bankruptcy if the cash-burn problem isn't solved. Should bankruptcy result, you would lose 100% of your investment.

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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Invitae. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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