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What’s Happening With Avacta (AVCT) Share Price, Down 63% in 2024?

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Pharmaceutical developer Avacta Group (LSE:AVCT) also known as AVCT, is one of the UK’s leading diagnostics and cancer treatments, but has seen its share price fall by a staggering 63% in 2024. This dramatic decline has left many investors wondering what caused this downward spiral. AVCT share price spirals. So is there more pain ahead, or is there a potential opportunity here?

What went wrong?

Many of us will know the company from the development of the Covid-19 lateral flu test. However, since then, the share price has been incredibly volatile. Since the peak in 2020, when shares hit £2.74 and the market cap was £340m, the company’s value has sunk by £154m.

Several factors seem to be at play here. Many things are common in the biotech sector, but I still have a few big concerns.

Avacta, like many other pre-revenue companies in the biotech sector, has yet to turn a profit. The company’s earnings per share are forecast to decline in the coming years, which has dampened investor confidence.

The firm has grown revenue by an impressive 34% over the past five years. However, it seems that this growth may fall short of the high expectations of investors. This pessimism has naturally led to a sell-off with the strong rallies in previous years, sending the share price down.

Business has also been affected by difficulties in obtaining regulatory approval for new diagnoses and treatments. A delay in acquiring the rights to a new antigen testing kit in May 2023 further eroded investor confidence.

The biggest red flag for me is the dilution of shares in the company, with 31% more shares outstanding than a year ago. In February 2024, the business raised funds through the sale of shares at a significantly discounted price. To me, this seems like an action the company won’t take unless it really has to, sending a very worrisome signal.

What hope?

While recent performance has been undeniably bleak, there are some positive signs for Avacta. The company finally received ISO 13485 certification last year, allowing its tests to be used in Europe. This can lead to increased sales and possibly a change in fortune.

When compared to others in the sector, the price-to-sales (P/S) ratio of 6.6 times is well below the average of 10.2 times. The technology used here clearly has a future. So if a company can grow sustainably, and build a large enough market share, it can be a winner in the long run.

Overall

Declining share prices is a complex problem, which requires a fair amount of technical knowledge in the field. The short-term outlook may seem uncertain, but the company’s progress in regulatory approvals and its future growth prospects may represent a good opportunity for patient investors. However, I think there are less complicated and more profitable investments out there, so I’ll stay clear for now.


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