Progenity Has Too Many Problems, Not Enough Money?

Stock Market

In a record blitz of initial public offerings (IPO) like Progenity (NASDAQ:PROG), you’re going to encounter two incontrovertible facts. First, retail investors will have increased opportunities to put their money to work (or at risk). Second, not every one of these recent IPOs will enjoy outsized success. From the looks of it, PROG stock is heading toward the unfavorable part of the spectrum.

Various graphical representations of medical imagery are shown in front of a doctor using a tablet computer.

Source: Shutterstock / PopTika

Per data from Google Finance, shares have dropped nearly 11.17% on a trailing one-year basis as of today. On a year-to-date basis, PROG stock is staring at a 16.70% capsizing. For anyone bullish on its recovery efforts, I acknowledge that anything can happen. However, the crimson ink is a reminder that you’ve got to be careful with IPOs.

Yes, IPOs have pizzazz and in the spirit of total transparency, I extensively covered the topic — including the ultra-popular special purpose acquisition company (SPAC) — for Benzinga. But you’ve also got to make decisions based on what’s right for you, not what the issuing company wants you to believe.

Remember, you’re skeptical when you’re dealing with a slimy used-car salesman in a rundown neighborhood. You should carry that same skepticism with PROG stock or any IPO.

That’s not to say that Progenity doesn’t have upside appeal because it does. According to its Form 10-Q for the quarter ended Sept. 30, 2021, the company specializes in the U.S. “molecular testing markets serving women’s health providers in the obstetric, gynecological, fertility, and maternal fetal medicine specialty areas.”

Worldwide, experts project that the broader women’s health diagnostics, market will hit $36.6 billion by 2025, up from $25 billion generated in 2020. That comes out to a CAGR of 7.9%, presenting a solid backdrop for Progenity.

Myriad Question Marks Haunt PROG Stock

Further, Progenity’s targeted subsegments also feature a robust addressable market. For instance, the “global fetal monitoring market is projected to $ 5.2 billion by 2026 from USD 3.7 billion in 2021, at a CAGR of 7.2% from 2021 to 2026,” states a finding from ResearchAndMarkets.com.

Also, other data from Emergen Research indicates that the global in-vitro market size could hit $118.44 billion in 2028. If so, that’s encouraging for PROG stock on a topical level since it theoretically incentivizes investors to take a shot, especially at currently deflated prices.

Nevertheless, PROG stock is risky because of myriad issues that continue to drag on the fundamental narrative. As stated in its 10-Q, management is currently refocusing efforts and resources, seeking “strategic alternatives” for its affiliation with Avero Diagnotics, a company that offers prenatal carrier screening and noninvasive prenatal testing services.

That’s a distraction for PROG stock as investors prefer clarity, especially when you’re dealing with an aspirational company like Progenity. Bear in mind that the firm lost $43.7 million against revenue of $182,000 in the third quarter.

Now, incurring losses is nothing new in this space. However, the company has been racking up quite a few of them in 2018 and 2019. Moreover, my InvestorPlace colleague Ian Bezek explains that this wasn’t the worst of it.

In July 2020, the U.S. Department of Justice announced a settlement with Progenity in which the company had to pay $49 million to “settle charges around fraudulent billing and kickbacks.” Then, you factor in the aforementioned winding down of the testing business — which is central to the fundamental narrative of PROG stock — and you have a very shaky situation.

I’m not saying that you can’t make money from the recent short-squeeze enthusiasm. But you’ve got to know all the facts before diving in.

A Long-Term Covid Drag?

On its 10-Q form, Progenity disclosed risk factors related to the Covid-19 pandemic. Management mentioned the general factors related to the global health crisis, including supply chain disruptions and economic pressures. But the virus could also be a direct impact to PROG stock.

How so? According to Scientific American, the “pandemic caused a baby bust, not a boom.” Therefore, even if Progenity gets its house in order, the total addressable market for the core business could be lower than initially projected.

For me, this just adds more questions on top of an already questionable trade. Ultimately, you should do as you please but risk-averse investors may want to think twice before placing a wager.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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