Is Ginkgo Bioworks a Buy Under $5?

Cell programming platform operator Ginkgo Bioworks (DNA) went public late last year in an SPAC merger. Since then, the stock has plummeted more than 60% in price, closing yesterday’s session at $4.13. In addition, analysts have increased their loss per share expectations for the stock for this year. So, would it be wise to invest in the stock now? Read on to learn our view.

Biotech company Ginkgo Bioworks Holdings, Inc. (DNA) in Boston operates as a platform for cell programming. The company’s platform is used to program cells to enable the biological production of products such as novel therapeutics, food ingredients, and chemicals derived from petroleum. DNA serves various end markets, including specialty chemicals, agriculture, pharmaceuticals, and consumer products.

Analysts updated their earnings model after the company reported its yearly results, predicting its losses to decline to $0.16 per share this year. However, analysts had earlier predicted losses would decline to $0.12 per share, indicating an increase in loss per share expectations. The consensus revenue estimate held steady at $310.30 million.

DNA’s stock has declined 63.8% in price since it went public on Sept. 17, 2021, and 50.3% year-to-date. But the stock gained 20.4% over the past month to close yesterday’s trading session at $4.13.

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Here is what could shape DNA’s performance in the near term.

Recent SPAC Merger

DNA began trading on the New York Stock Exchange on Sept.17, 2021, after a SPAC deal with Soaring Eagle Acquisition Corp. The company was expected to raise approximately $1.60 billion and was valued at $15 billion. Shares of the company opened at $11.15. However, DNA’s extremely high valuation when it went public was a mismatch with its existing revenues. Some biotech investors believed the company’s valuation to be excessive due to its small revenue and lack of any stellar products.

Latest Supply Agreement

On April 5, synthetic biology and genomics company Twist Bioscience Corporation (TWST) and DNA announced a new supply agreement, expanding the depth of the collaboration between the two companies. The four-year agreement is expected to help DNA in scaling its capabilities. However, the gains from this agreement might be stretched over an extended period.

Bleak Bottom line

For its fiscal fourth quarter, ended December 31, DNA’s total revenue increased 363.2% year-over-year to $148.49 million. However, its loss from operations rose 2,914.5% from the prior-year period to $1.68 billion. Its net loss and net loss per share attributable to DNA’s common stockholders increased 3,359.1% and 2,650%, respectively, from the same period in the prior year to $1.60 billion and $1.10.

POWR Ratings Reflect Bleak Prospects

DNA’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, which equates to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

DNA has a Growth grade of D, which is in sync with its bleak bottom-line growth in its most recent quarter.

The stock has a D grade for Momentum. This is consistent with the stock’s current trading at lower than its 50-day and 200-day moving averages of $4.40 and $9.05.

In the 412-stock Biotech industry, DNA is ranked #411.

Click here to see the additional POWR Ratings for DNA (Value, Stability, Sentiment, and Quality).

View all the top stocks in the Biotech industry here.

Bottom Line

DNA expects to grow its capability through its latest supply agreement. However, its weak bottom line is raising concerns. In addition, analysts expect its EPS to remain negative until its fiscal year 2023. Hence, the stock might be best avoided.

How Does Ginkgo Bioworks Holdings, Inc. (DNA) Stack Up Against its Peers?

While DNA has an overall POWR Rating of F, one might consider looking at its industry peers, Vertex Pharmaceuticals Inc. (VRTX) and Incyte Corporation (INCY), which have an overall A (Strong Buy) rating, and Alkermes plc (ALKS) and Amgen Inc. (AMGN), which have an overall B (Buy) rating.

Click here to checkout our Healthcare Sector Report for 2022

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DNA shares were trading at $3.56 per share on Tuesday afternoon, down $0.57 (-13.80%). Year-to-date, DNA has declined -57.16%, versus a -4.37% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.


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