Cancer Genetics Inc. (CGIX) shareholders must certainly be pleased with the stock performance during the prior three trading days. Shares of Cancer Genetics closed higher by over 29%, ending the regular trading session at $5.05 per share on Monday.
Since the start of 2017, shares are higher by over 260%. With a market cap now approaching $100 million, investor interest has spiked since the company announced record fourth quarter and full year financials for 2016.
A rising share price is a good indicator of investor sentiment, but even without that conviction, Cancer Genetics is taking care of business on its own. While the sudden interest is a bonus, the company is deserving of the praise.
Is Cancer Genetics worthy?
Cancer Genetics wore the face of bravado last week, reporting an extremely robust fourth quarter and full year set of 2016 financials, complimented by positive guidance for 2017. With a market cap of roughly $96 million after Monday's close, share prices may, in fact, be somewhat cheap.
Cancer Genetics, a leader in enabling precision medicine for oncology through molecular markers and diagnostics, reported impressive growth among a host of financial categories. For 2016, company revenues increased by over 50% to $27 million, up from $18 million in 2015. Fourth quarter revenue piled on a 32% increase year over year, banking additional income through organic growth to the tune of $7.2 million. Full-year 2016 gross profit also increased significantly, with margins being posted at 37%, up from 22% during the prior year. Altogether, the results led to a net loss decrease of over 51%, and the company believes that the pathway to profitability is now paved.
Cash liquidity is also sound with Cancer Genetics closing on a $12 million debt financing on March 22. Additionally, Cancer Genetics indicated that it is now working with nine of the 10 largest pharma and biotech companies and, based on the company's strategic decision to focus on solid tumors and hereditary cancers, Cancer Genetics has gained considerable traction, leverage and market share in the immuno-oncology sector. As of the fourth quarter of 2016, Cancer Genetics increased the number of clinical studies that it is currently supporting by over 50% and is now active in 125 current trials.
The company's clinical services revenue saw a nice spike as well, increasing by over 88% to $10.7 million for the year. The momentum continued through the fourth quarter, improving by 25% over the same period in 2015. Again, the growth was organic in nature with clinical test volumes increasing by 131% over the prior year with 28,658 current clinical trials.
Cancer Genetics is hitting on all cylinders, with each business category at the company recording substantial increases in a year-over-year comparison. The company is taking advantage of its recent acquisitions with the integration and synergistic values beginning to perform as intended. These accretive benefits have increased the operating leverage across the company, leading to substantial, targeted and specific gains in market share.
Commenting on the strong quarter, Panna Sharma, president and CEO, stated, "As we integrated our U.S. sites, we achieved record margins during the fourth quarter, which we expect will continue rising as we grow revenue and capabilities. We have also started a major initiative to make our information and molecular data more valuable to both our biopharma customers and health care systems. We expect that this big-data and artificial intelligence initiative will further expand our margins while increasing our value to the oncology ecosystem."
Will Cancer Genetics keep the momentum?
Cancer Genetics has no intention of letting up on the accelerator in 2017. According to Sharma, "During 2017 we expect our business to continue high double-digit, durable growth while continuing to innovate in the development and delivery of precision diagnostics and testing for oncology. We believe that we have a clear path toward achieving profitability, and accelerating our market share through partnerships and collaborations in areas that are becoming increasingly critical to the next generation of breakthroughs in patient care."
Sharma added, "Technologies and trends such as artificial intelligence, big data and combining genomic and immune-marker testing to improve patient outcomes and accelerate the discovery of new therapeutics are all areas that Cancer Genetics will be integrating into our business model and our global business infrastructure. Our growing reach into the oncology ecosystem coupled with the strengthening of our operating fundamentals makes Cancer Genetics a leader in developing and delivering oncology diagnostics from bench to bedside."
Perhaps investors should take this company to heart. Cancer Genetics ended the quarter with approximately $42 million in current assets, and roughly $23 million of those assets sit in cash and cash equivalents. Looking to the company's consolidated statement of operations, Cancer Genetics showed remarkable year-over-year improvement, substantially reducing the bottom-line loss to 1.00 per share, a 96% improvement over year end 2015.
Cancer Genetics is expanding with discipline and is in the process of developing a global footprint with locations in the U.S., India and China. The company has established strong clinical research collaborations with major cancer centers such as Memorial Sloan-Kettering, the Cleveland Clinic, Mayo Clinic, Keck School of Medicine at the University of Southern California and the National Cancer Institute.
The company's service offerings include a comprehensive range of laboratory services that provide critical genomic and biomarker information, and it boasts that its state-of-the-art reference labs are CLIA-certified and CAP-accredited in the U.S. and have licensure from several states including New York.
Volume precedes price
The presence and resurgence of trading volume is a welcome sight as the shares have been able to hold recent gains through a combination of increased liquidity and spurred investor interest. Shares of Cancer Genetics have historically traded at higher levels; at current prices, Cancer Genetics may be trending back toward its 2013 IPO price of $10.00 per share. The volume surge and investor interest may also be driven by the fact that the stock is now trading above the $5.00 level, which opens the door to additional institutional investment consideration.
While chasing a stock is not typically a wise move for any investor, nibbling at these levels may be justified based on the current financial position of the company, buoyed by the revenue momentum recorded through the end of the year. Dollar cost averaging may be the best bet here, and no stock goes straight up, regardless of the promises made. For 2017, Cancer Genetics may very well prove to be a winner, despite what may turn out to be a turbulent market based on the political and fragile economic climate.
The adage "volume precedes price" is certainly apropos in Cancer Genetics' case, with volume, price and current technical data indicating the potential for continued near-term momentum. What investors need to keep in mind, though, is that despite the likelihood of manipulative head fakes and midday share dumps, Cancer Genetics, for the mid- to longer term, has certainly established itself as a potential major player in the immuno-oncology space. Thus, pullbacks may be beneficial for a cost-averaging investor looking to build a position in the company.
For now, the stars are well aligned at Cancer Genetics, and if the company produces on its optimistic guidance for 2017, then shares purchased at current levels may turn out to be quite a bargain.
Disclosure:Â Â I have no position in any stock mentioned but may initiate a long position in Cancer Genetics within the next 72 hours.
This article reflects my own opinions and unique articulation. This article is not intended to offer investing advice, guarantee 100% accurate predictions, or to be interpreted as providing a personal recommendation. What I can guarantee, though, is accurate research, thoughtful analysis and an enthusiasm about any stock that I cover.
While I seek to uncover emerging companies that I feel have true value and potential, it's important that investors assign an appropriate time horizon to each of their investments, understanding that emerging companies need time to mature.
Start a free seven-day trial of Premium Membership to GuruFocus.
