Why Twist Bioscience Stock Is Tanking Today

What happened

Shares of Twist Bioscience (NASDAQ:TWST) were tanking by 20.2% as of 11:22 a.m. EST on Friday. The steep drop came after the next-generation sequencing company announced its fiscal 2021 first-quarter results following the market close on Thursday. While Twist’s results beat expectations, J.P. Morgan analyst Tycho Peterson nonetheless downgraded the stock to underweight from neutral.

So what

Twist reported its revenue soared nearly 64% year over year in fiscal Q1 to $28.2 million. Its bottom line also improved. The company announced a net loss of $32.9 million, or $0.72 per share. But that was a lot better than the loss of $55.6 million, or $1.69 per share, posted in the prior-year period.

DNA strands

Image source: Getty Images.

So why is J.P. Morgan’s Peterson more bearish about the healthcare stock? It boils down to valuation.

Peterson wrote to investors that Twist’s risk-reward proposition is “skewed to the downside” after its shares skyrocketed more than 600% over the last 12 months. He set a price target of $100, barely over half of Twist’s closing price on Thursday.

There’s no question that the analyst is right about Twist’s valuation being at a nosebleed level. The stock currently trades at more than 71 times sales. Even with Twist’s tremendous revenue growth in its latest quarter, that kind of premium is hard to justify.

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Now what

Twist expects that its full-year fiscal 2021 revenue will be between $110 million and $118 million. This range reflects impressive growth. However, it’s probably going to take significantly more growth for analysts like Tycho Peterson to be comfortable with a market cap of $8 billion for Twist.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

View more information: https://www.fool.com/investing/2021/02/05/why-twist-bioscience-stock-is-tanking-today/

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