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Novacyt Share Price Rallied 8% Despite a Lack of News From the Company. What’s Next?

Updated: 28 Oct 2021

Novacyt SA (LON: NYCT) share price rallied 8.02% today despite the lack of announcements from the company that specialises in creating medical diagnostics kits.

However, despite today’s rally, Novacyt shares are still down 69.23% since January after investors reacted negatively to losing their largest contract with the UK Department of Health and Social Care (DHSC).

Novacyt had a lucrative contract with the DHSC to provide COVID-19 testing kits to the British government. Still, the contract was not renewed earlier this year amid steep competition in the COVID-19 testing space from companies with cheaper test kits.

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The company is currently engaged in a legal tussle with the DHSC, with many hoping that the firm will win and have its contract finally extended. However, the firm has warned investors that it might not win the legal suit, negatively impacting its revenues.

Many investors want to know whether Novacyt shares will rally to their 2020 highs soon. The short answer is that such a scenario is quite unlikely, given that the global coronavirus pandemic is subsiding. 

Novacyt currently generates most of its revenues from selling its COVID-19 test kits, whose demand is likely to keep shrinking over the coming months and years as life returns to a new normal in most countries.

The company is aware of its tough predicament and recently launched its Winterplex test targeted at the 2021-22 flu season, which kicks into high gear in fall and winter. 

Novacyt also launched its Escapeplex test used for detecting four new variants of COVID-19 and is currently targeting firms in the private sector as opposed to governments.

The company’s shares appear to have formed a bottoming pattern on the daily chart, as evidenced by the below-sideways trading pattern. 

However, given that Novacyt shares are trading above 260p, there is an extremely high chance that we will see further declines in the company’s share price in the coming months and years. 

The company must strongly diversify its revenues from COVID-19 testing as the global pandemic comes under control to maintain its current valuation. 

Therefore, I wouldn’t be buying the company’s stock at current prices due to the looming issues that could hurt its share price.

*This is not investment advice. Always do your due diligence before making investment decisions.

Novacyt share price.

IG chart of Novacyt share price 28-10-2021
Source: IG

Novacyt share price rallied 8.02% to trade at 269.50p, rising from Wednesday’s closing price of 249.70p.

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