Oxford Nanopore (LSE:ONT) shares debuted on the London Stock Exchange last Thursday via an initial public offering (IPO). The Oxford Nanopore share price soared immediately. Reviewing the IPO and what I have learnt about the company, should I consider buying the shares for my portfolio?
Successful IPO
Established in 2005 out of Oxford University, Oxford Nanopore has expanded rapidly with offices throughout the world. Its main focus is DNA and RNA molecule technology. These form the genetic makeup of organisms. There are lots of applications for such technology including healthcare and medicine, crop science, and scientific research too. With the technology being applicable to many different sectors, it could be very lucrative. Oxford also produces rapid Covid-19 tests.
The Oxford Nanopore share price debuted at 425p per share on Thursday. By the time trading opened on Friday, shares were trading close to 50% higher, for 626p per share. By the end of the close on Friday, shares fell back slightly to 615p per share. The IPO actually excluded retail investors initially with only financial institutions able to purchase stock. This has since changed with shares now available to retail investors too. As I write, shares are trading for 577p per share.
I would consider this a successful IPO. The spike in the Oxford Nanopore share price will only boost the financials and profile of this burgeoning firm.
Revenues increase, losses reported
With a successful IPO under its belt, let’s take a look at Oxford Nanopore’s financials. Although technology is hard to create, making it profitable is even harder in my opinion.
Reviewing Oxford Nanopore’s recent financials that are available, I saw that revenue doubled from 2019 to 2020. This rose from £52m to £113.9m. I believe the primary factor behind this revenue hike was the award of government contracts for Covid-19 testing technology and application.
Despite recording increased revenue, the firm was loss-making in 2019 and 2020. This can often be the case for firms that need to invest heavily in research and development (R&D). Some analysts note the company may not be profitable until at least 2026. This could affect the Oxford Nanopore share price and investor sentiment once the dust settles from the IPO.
I must note that the Oxford Nanopore share price at current levels is spiking as many other tech stocks do based on potential value and revenue in the future.
My verdict on the Oxford Nanopore share price
I have concerns about buying Oxford Nanopore shares. Firstly, it is loss-making, which I understand is sometimes part of the journey for tech firms in early stages. Still, I want to see a more solid financial standing before I consider investing. Consistent losses may also lead to liquidity issues as well. Secondly, competition could affect investor sentiment too. DNA/RNA sequencing is not a new area and others are also attempting to create the latest tech as well, such as American firm Illumina.
Right now I would not buy shares in Oxford Nanopore for my portfolio. I believe the firm is too early in its journey to show me tangible results and revenue streams for the future and the risks noted earlier put me off too. I would look at other tech stocks that could offer me better prospects of returns.