The Avacta Group Plc (LON: AVCT) share price fell 14.9% in one month after hitting the 140p resistance zone and bouncing off it in late October and early November. For those interested in the stock, let’s dive into its fundamentals to understand its business better.
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The latest move from the company was the acquisition of Launch Diagnostics Holdings for £37 million. To fund the purchase, the company raised £64 million via a £55 million convertible bond offering, a £7 million share placing and a £2 million open offer.
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The fundraising will likely lead to massive dilution of existing shareholders as the convertible bond holders convert their bonds into shares, given that the company cannot redeem the bonds issued due to a lack of funds.
Avacta’s revenues in 2021 were a little over £2.9 million, and the company booked a loss of £29 million, ten times its revenues. The company’s 2020 revenues came in at £2.1 million, and 2022 revenues are expected to be minimal.
Analysts expect the company to incur a £30 million net loss in 2023, indicating that Avacta’s prospects are not promising. The company is currently valued at £81.2 million, which implies a prie-to-sales ratio of 100X.
Avacta is overvalued despite the significant investor interest in the company that saw its shares rally from a low of 40p in March 2022 to their recent highs of 140p. The company’s shares are currently trading at 107p and could rally higher.
However, as a value investor, I would stay away from Avavcta shares due to their pricey valuation. The company’s allure has always been its promise of future profitability, but the profits are yet to materialise as the firm remains loss-making.
It is yet to be determined if Avacta shall successfully incorporate the Launch Diagnostics purchase into its business to generate much-needed revenues, but only time will tell. Meanwhile, I would avoid the company since there are better buys in the stock market.
*This is not investment advice.
Avacta share price.
Avacta shares have fallen 14.87% in the past month. Can they reverse course and rally higher?
eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk.