Ginkgo Bioworks(NYSE: DNA) stock has dropped more than 10% since its latest quarterly report showing a more than 53% decline in Q1 revenue and continued net losses from its business. BTIG analyst Mark Massaro downgraded Ginkgo stock to sell, and lowered his price on this biotech penny stock to just $0.50. It closed Friday at $0.80, so that would be a 37.5% drop.
Is Ginkgo stock a sell?
Why rate Ginkgo stock a sell? Where shall I begin?
Massaro is most concerned with management commentary that new "cell programs" -- of which the company expects to add 100 this year -- are no longer a great forecaster of revenue growth, and may give investors a false impression of the company's revenue growth rate. The analyst wrote that it will be "difficult to model how new cell program adds will flow into revenue growth in 2024, 2025, and beyond." For that reason, as well as a change in business plan to offering "lab data as a service," Massaro feels it's safest to avoid the stock for now.
I agree. Ginkgo cut costs significantly in the quarter, but largely through cuts in head count and research and development -- troubling moves in a supposed growth stock. Adding to its troubles, the company received a warning from the NYSE that it's at risk of being delisting if the stock price does not rise soon. That's often a precursor to a company announcing a reverse stock split -- yet another no-no for growth stocks.
Although possessing enough cash to keep it going for about two years at its current burn rate, I'm just not sure this company is going anywhere fast. To me, that makes Ginkgo stock a sell.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Roche Ag. The Motley Fool has a disclosure policy.
