Home Stock Market The Novacyt share price is down 77% in a year – is it now a glaring buy? – The Motley Fool UK

The Novacyt share price is down 77% in a year – is it now a glaring buy? – The Motley Fool UK

by callingemout
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Key points

  • The Novacyt share price soared from 20p in January 2020 to 1,194p in October 2020 as the firm rolled out testing kits for Covid-19
  • The company is in a dispute with the Department of Health and Social Care over a contract cancellation
  • Its cash position for 2021 is £101.8m, up from £91.8m a year previously

An Anglo-French biotechnology company, Novacyt (NCYT) specialises in clinical diagnostics. When the Covid-19 pandemic struck, the firm used its testing infrastructure to its advantage. It produced a number of lateral flow and PCR tests for use in many countries around the world. Over the past year, the Novacyt share price has fallen about 77% from its heights during the pandemic. I want to know if this price movement, and the underlying business, justifies investment in this company for the long term. Let’s take a closer look. 

Covid testing and the Novacyt share price

As the pandemic hit throughout the world, Novacyt worked hard to develop Covid tests. It was at an advantage given its speciality is clinical diagnostics. As the company ramped up its testing output, the share price climbed higher. At the end of January 2020, before the pandemic, shares were trading at 20p. As the crisis intensified, the share price topped out at 1,194p at the end of October 2020. The shares currently trade at 158.3p. 

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In more recent times, the business has not been running as smoothly. It is still getting approval for its lateral flow and PCR tests, although it is unclear how much demand remains. From 1 April 2022, free mass testing will end in England. It is likely that other countries will follow, given the milder nature of the Omicron variant. I think this move away from free mass testing could negatively impact the Novacyt share price.   

The firm also has an ongoing dispute with the Department of Health and Social Care (DHSC). The dispute originates from a September 2020 deal to supply its Primerdesign testing kits for six months. The DHSC opted not to extend the contract and Novacyt says this has left it about £40m out of pocket.

Recent financial results

For the 2021 calendar year, company revenue stood at £95.8m. This was lower than the previous year’s total of £277.2m. It is worth noting, however, that this latter figure was 20 times greater than revenue in 2019. This is because of the income from the roll out of the testing kits.

Profits also declined from 2020 to 2021, falling from £176.1m to just £36m. This suggests that as the intensity of the pandemic subsides, the results and the Novacyt share price could steadily fall. It is worth noting, though, that the business had a cash position of £101.8m for 2021, up from £91.8m in 2020.

The Novacyt share price performed well during the pandemic. As conditions return to normal, however, much of its testing-related revenue will disappear. Non-Covid testing will remain, but I won’t be buying this company, owing to the downward trajectory of its results and share price. 

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Andrew Woods 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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