The last time I covered coronavirus test manufacturer Novacyt (LSE:NCYT) it was up 900%. That was two months ago when the biotech firm had a market cap of £50m. Now it’s nearly five times that.
Pre-lockdown in February 2020, I said Novacyt was a decent punt for day traders. I hold that view today. But I don’t think it’s a share to pump your retirement cash into.
The Anglo-French company has grown from a market cap of £9.5m in January to £235m in April. But don’t feel bad if this one flew under your radar: even professional investors I’ve spoken to missed it altogether.Â
Since its all-time high of 491p on 14 April, traders have been taking profits. The shares are now trading 27% lower at around 355p.
I’d say Novacyt is a reasonable investment for some, but only in the short term. Scaling up is always an issue for smaller companies and these can be highly speculative, bubble-like stocks.
I doubt many people are interrogating its balance sheet. The company has reported an annual loss every year it has been trading. Prices are being driven by momentum, where upward trends become a self-fulfilling prophecy.
Novacyt FOMO
Still, the Novacyt share price has rocketed an astonishing 2,750% in the last three months after getting approval for its tests from public health authorities at the World Health Organisation, in the UK, and by the US Food and Drug Administration. These are very large markets, providing a huge potential earnings boost for such a small company.
More contracts have followed and Novacyt has had emergency use approval granted by health departments in Saudi Arabia and Indonesia.
Through its subsidiary Primerdesign, the company is now looking to manufacture eight million coronavirus tests a month from its Southampton site.
I’d still caution against making long-term investment decisions based on a ‘fear of missing out’. That’s how people get sucked in and spend far too much on speculative assets like Bitcoin.
Novice investors will also be fodder for the pros, who have direct market access and so can buy at cheaper prices than you and I. They can jump ship much more quickly if prices deflate, too.
AIM high
Testing companies have been crucial for the two stages of coronavirus testing. The UK has carried out nearly 500,000 tests on people to see whether they currently have the virus. The next equally important stage focuses on immunity.
Governments are now looking at lifting lockdown restrictions and need the likes of healthcare workers to safely return to their jobs.
And there are other AIM-listed coronavirus investment options. For example, antibody test maker Omega Diagnostics (LSE:ODX). The Scottish life sciences firm recently signed a material transfer agreement for London firm Mologic to use its Cambridgeshire factory. This deal will produce 46,000 tests a day. At full capacity that’s 1.15 million tests every month. And Omega already produces bioscience testing for a range of infectious diseases, including malaria, dengue fever and tuberculosis.
Antibody testing is used to identify people who may be immune to the coronavirus who have been infected and have since recovered. This is important in the absence of a vaccine, to allow shuttered economies to start reopening.
But the wrong investment in an unproven and volatile microcap could blow up your portfolio and lose you a lot of money. I’d avoid this one.