Natera: Genetic Testing and Molecular Diagnostics

09/01/2020 5:00 am EST


Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

The global genetic testing market is growing and expected to increase by $5 billion in the next four years alone. Early detection screening is in particularly high demand, and Natera (NTRA) is a leader in the field, explains Mike Cintolo, growth stock specialist and editor of Cabot Top Ten Trader.

The company's tests are focused on DNA analysis — providing non-invasive prenatal tests for prospective parents and early-stage pregnancies, as well as screening for genetic abnormalities.

The firm is divided into three segments: reproductive health, oncology and organ transplantation, and markets seven molecular diagnostic tests.

Natera’s oncology segment offers a cancer screening service, Signatera, which is a custom-built circulating tumor DNA test for multiple cancer types (including esophageal and GI cancer).

Its transplant segment technology enhances the ability to assess otherwise undetected rejection events that might lead to loss of a transplanted organ.

But it’s in reproductive health where Natera leads the pack, with an expansive portfolio of tests for identifying genetic disorders. These tests are major revenue drivers, and the firm processed approximately 234,100 tests in Q2 — an increase of 21%.

While it reported a net loss, total revenue was 17% higher in Q2, driven primarily by sales of its Panorama prenatal and Horizon genetic tests; analysts predict low double-digit revenue growth in the next two quarters. Natera also has $571 million in cash and is well cushioned against economic headwinds.

Looking ahead, management sees the non-invasive prenatal testing market market as being only around 15% to 20% penetrated, leaving a large runway for future growth.

Technically, NTRA was in a tight consolidation pattern between October and February, and it looked like the stock was preparing for a major rally. But in March, panic struck and NTRA fell from $40 to $18 in just two weeks.

It quickly bottomed, however, and rallied back to $50 in May, then spent three months establishing another launching pad. This time, lift-off was successful, with the stock hitting a record high of $66 before hesitating. Use dips to do some nibbling.

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