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Invitae: Buy The Dip

|About: Invitae (NVTA)

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Genetic testing concern Invitae (NVTA) dropped 15% in trading on Friday.  This knee-jerk sell-off provides an actionable opportunity to add a few shares by buying this dip, which is likely to be temporary.  Let's revisit this fast-growing small cap concern below.

Company Overview:

Invitae (NYSE:NVTA) a San Francisco based genetic information company. The company provides a diagnostic service comprising hundreds of genes for various genetic disorders associated with oncology, cardiology, neurology, pediatrics, and other rare disease areas. The company aims to drive down the costs of testing for inherited genetic conditions by aggregated genetic testing.  This is a far growing niche in the market.  Genetic testing should hit $10 billion in annual sales in five to seven years.  The stock has current market capitalization of approximately $400 million.

The Trigger:

What cause the decline on Friday was an update on 2017 revenue and conservative guidance from the company for 2018.  Management stated it expected to post organic revenue of $59 million for FY2017.  This was in the midpoint of the previous range leadership has previously given of $55 million to $65 million.  This also does not include the $8 million of sales that two recent acquisitions had in 2017.  The company processed 134,000 samples in 2017 above previous guidance of 120,000 to 130,000 samples for FY2017.  This represents sales and sample growth of over 125% year-over-year compared with 2016.

Then the company said it 'only' would grow nearly 80% at the floor of its guidance for FY2018.  In the bottom end of range offered the company should process a quarter million samples and delivered revenue of $120 million.  Don't you wish all the companies you have stock in could post that sort of 'abysmal' annual growth?  I think that the dip caused by this guidance should be actioned by those that believe in Invitae's long term growth story.  It also is quite likely the company just put in a 'low bar' that it will able to step over in the year ahead.



Also remember the company posted sales of just $25 million in FY2016.  Basically quintupling revenues in just two years is hardly anything to sneeze at.  Also the law of 'large numbers' almost always comes into play for growth stories as it is much easier to double revenues from $25 million than from $60 million.  As volume continues ramp up, the cost per sample (see above) will continue to fall.  It is my opinion that nothing has changed about the Invitae's long term prospects.  I added a few shares to my core holdings on this decline as I expect this to be an advantageous entry point when we look back on NVTA a year from now.

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Disclosure: I am/we are long nvta.