Progenity: Risks, Red Flags, and Poor Fundamentals

Progenity Inc (PROG) is a biotechnology company. It is engaged in developing and commercializing molecular testing products. The company is translating innovation into precision medicine through diagnostic and therapeutic development platforms based on genomics, proteomics, and microbiomics.

The firm generates its revenue from molecular laboratory tests, principally from the sale of Innatal, Preparent, and pathology molecular testing. The company was founded in 2010 and is headquartered in San Diego, California.

I am bearish on the PROG stock. It is a penny stock that may seem cheap, as it is now trading at approximately $1.40 per share. However, further analyzing its fundamentals shows there are too many severe risks, suggesting its valuation is still rich, despite having losses of about 77% in the past 1-year.

Progenity: Is there a Bullish Side?

Progenity is a classic penny stock that is a textbook example of a public trade company to avoid. It has a mix of strongly negative factors. First, there is a bad profitability rating, and its financial health evaluation is negative as well. Furthermore, the stock has an expensive valuation and it is also far from delivering any growth.

Overall, building a bullish scenario for Progenity based on fundamentals is unlikely to be based on facts instead of opinions. Investing is credible when is based on fundamental facts rather than emotions and opinions.

Progenity: The Bearish Side

Progenity has been a money-losing company since 2018. It is interesting to mention some of its profitability ratios that can leave investors wondering why the business model is so flawed. PROG stock earnings have been negative since Q2 2020.

Progenity has a Return on Assets of -235.53%, which is worse than the rest of the industry; the industry average Return on Assets is 0.49%, and 100% of the industry peers have a better Return on Assets.

Furthermore, the company has a Profit Margin of -583.11%. This is below the industry average of 0.68%, and 97% of its industry peers outperform Progenity.

Days sales outstanding are building up, which may create liquidity problems and difficulty in collecting payment from its customers.

The financial strength is very poor, as indicated by an Altman Z-score of -14.89, which means the company is in distress zone and bankruptcy could take place in the next two years.

Moreover, the biotechnology company has negative growth in revenue. Measured over the last 3 years, revenue has been decreasing by -23.81% yearly. The earnings per share have also decreased strongly, by -113.78% in the last year.

I mentioned earlier the possible presence of liquidity problems, which are supported by the Current Ratio of 0.90. That signals the firm is not financially healthy enough and could expect problems in meeting its short-term obligations.

At this point, investors may start wondering whether, from a fundamental perspective, the financial condition could get even worse or if there is a light at the tunnel. Unfortunately, things get even worse.

As expected, there is a severe cash burn problem. The company has less than a year of cash runway, based on its current free cash flow.

Shareholders have been substantially diluted in the past year, with total shares outstanding now at 164 million. There is also a negative shareholders’ equity.

I strongly believe future stock offerings are very likely for Progenity. The company will likely need them to raise cash to survive, but at the expense of the intrinsic value of its stock.

If the stock falls under $1.0 per share, it would also face a delisting risk.

Wall Street’s Take

Progenity has a Moderate Buy consensus based on one Buy and one Hold ratings. The average Progenity price target of $3.00 represents 141.9% upside potential.

Conclusion

Progenity is a classic textbook stock to avoid at all costs. It does not have any positive fundamental factors now, but too many negative ones that make it a very risky penny stock in the biotechnology industry.

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