The Novacyt (LSE: NCYT) share price has fallen 50% over the past 12 months. And it’s down a painful 80% since the peaks it reached in 2020.
The boom and bust is all down to the Covid-19 pandemic. Specifically, it’s about the success of Novacyt’s Covid testing kits. They were in huge demand through the pandemic, and that led to a massive growth share spike.
But Covid testing demand was always going to fall in the long term, and the rise of numerous (possibly cheaper) competitors was pretty much inevitable. So what we’re back to now, after the bubble has burst, is the real Novacyt and its long-term prospects.
Does the NCYT share price, now that it has fallen back to Earth, make it a buy? My ISA is lacking long-term growth stocks, and this might just be a candidate.
Full-year results
Investors are waiting for full-year results, due on 28 April, but we have some ideas of what to expect. In its full-year update, the company put 2021 underlying revenue at £95.8m. That excludes £40.8m revenue from the Department of Health and Social Care, which is under dispute after a contract cancellation.
Revenue in 2020 came in at £277m, so 2021 looks bad on that score. But the company recorded only £11.5m in 2019. That does still look like impressive two-year growth, and it could lend support to the NCYT share price.
EBITDA, before exceptionals, is expected to come in above £36m, for a margin in line with expectations. That is well below 2020’s £176m. But, again, we’re hopefully moving towards something sustainable over the long term.
Novacyt had cash of £102m at 31 December 2021, ahead of £91.8m a year previously. That alleviates any liquidity worries I might have had.
My main concern
There is one key thing that does concern me though. Covid products contributed 86% of Novacyt’s revenue in 2021. That’s down from a 95% figure in 2020. But it does reinforce the company’s dependence on a single product area.
The long-term prospects for the Novacyt share price do still appear to be tied firmly to Covid testing. I don’t want to tempt fate, but unless we start seeing more dangerous variants of the coronavirus, I fear that demand can only fall in the coming years.
Novacyt share price valuation
What about today’s NCYT share price valuation? If EPS falls by a similar proportion to EBITDA, we could be looking at a P/E of only around five. That looks super-cheap on the face of it. And there’s plenty of earnings downside built into a valuation like that — EPS could fall by a further two thirds and still leave a P/E of 15.
So what will I do? Will I buy, based on the possibility of a super low valuation once results are out? It’s tempting, with what I see as a decent safety margin in that valuation. But until I see how longer-term demand for Covid testing goes, I’m going to sit it out and just keep watching.