Our Stock of the Week is SOPHiA GENETICS (SOPH), which sold off last week along with most of the genomics group and announced good news while it was happening. SOPHiA sells software that hospitals and labs use to turn raw DNA sequencing data into results a doctor can act on. It works with any sequencing machine, and the company is paid each time a patient’s sample is analyzed.
Why It Sold
The selling had nothing to do with the company. Hedge funds that specialize in health care have been cutting both their longs and their shorts to reduce risk, a process called degrossing, and that means selling whatever has worked. SOPHiA had gained close to 50% since its August report, which made it a source of funds. It was an innocent victim.
What Changed
On Thursday, in the middle of that selling, SOPHiA and Myriad Genetics (MYGN) announced a collaboration tied to AstraZeneca (AZN). Myriad has built a score that flags a DNA-repair defect in prostate tumors, the kind of marker drug companies use to match patients to targeted cancer drugs. SOPHiA will build a version that hospitals can run in their own labs, which carries the test to the more than 1,000 institutions on its network. No financial terms were given, and this kind of project pays later, if a drug is approved with the test attached. It follows an August agreement to develop two such tests with AstraZeneca.
What Wall Street Thinks
All five analysts who cover the stock rate it a buy. After the August report, in which revenue grew 27% and U.S. volume grew 60%, H.C. Wainwright raised its target to $14 from $12 and BTIG went to $9 from $8. The stock trades near $7.40, about six times this year’s expected sales. SOPHiA still loses money, so that valuation depends on growth holding up. It raised $57.5 million in June, which takes financing off the list of near-term worries.
The Chart and the Plan
The stock ran after the August report, gave back part of that move last week and has held since, with technical support in the $6.75 to $7 area. The next test is the third-quarter report, expected in early November. We are in no rush. Fund-driven selling can run longer than it should, and we’d rather build a position in pieces as long as that support holds. Better late than early.
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This post is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this post. Do not buy, sell, or trade the stocks mentioned herein. We WILL actively trade this stock differently than discussed herein. We will sell into strength and buy or sell at any time for any reason. We will actively trade into any unusual activity. At the time of this post, principals, employees, and affiliates of Shark Investing, Inc. and/or principals, clients, employees, and affiliates of Hammerhead Financial Strategies, LLC, directly or indirectly, controlled investment and/or trading accounts containing no positions in SOPH at the time this was published. To accommodate the objectives of these investing and/or trading accounts, the trading in these shares will be contrary to and/or inconsistent with the information contained in this posting.
