TXG - 10x Genomics: No Signs Of A Growth Turnaround Heavy Bearish Momentum

Summary

• The Health Care sector and Biotech niche have both been interesting sources of relative market strength in recent months; one defensive, one more risk-on.
• 10x Genomics was a massive winner around the Covid-19 pandemic, but an improving health situation around the world poses challenges for the firm.
• With no immediate growth opportunities and a very steep technical downtrend, investors should look elsewhere for value and growth.
• While there's always the chance of a takeover, that is not reason enough to be long.

As the S&P 500 continues to retest its June lows, the Health Care sector has outperformed - particularly in the last two months during this most recent downturn. Biotech and life sciences equities have cushioned the overall market blow of late. One small genomics firm, though, continues to struggle after skyrocketing in 2020 and 2021.

Risk-Off Health Care, Risk-On Biotech Beating the Broad Market

According to Bank of America Global Research, 10x Genomics ( TXG ) is an early-stage genomics tools company that provides integrated solutions for the analysis of single cells including its Chromium instrument systems, proprietary consumables, and related software. The company is a pioneer and the current market leader. Single-cell analysis has the potential to revolutionize the study of biology with applications in virtually every field of research including cancer, immunology, stem cells, and neuroscience.

There are upside risks to the stock price should further progress be made with TXG's single-cell analysis and spatial genomics businesses. BofA notes that there has been an unfavorable recent trend in the rate of progression in 10x's testing results, compounding some missteps by the firm's management team in the last year. Making matters worse for the bulls is increasing market competition. Upside risks include a faster-than-forecast adoption of its new products and cell analysis procedures. Demand comes in the form of clinical and diagnostic applications. BofA also notes there's takeover potential with this Health Care sector company. Finally, there's a downside risk from labs ceasing operations following Covid-19.

The California-based $3.0 billion market cap Life Sciences company, within the Health Care sector, does not have earnings over the past year and does not pay a dividend, according to The Wall Street Journal .

On valuation, BofA analysts see both GAAP and operating earnings per share in the red through 2024. They are more pessimistic compared to the Bloomberg consensus forecast which shows per-share profits climbing into the black by 2024. Its free cash flow is only slightly negative and could near the flat line in the coming years.

10x's EV/Sales multiple on both a forward-looking and trailing basis is slightly above 5, in line with its industry peers. So, the valuation seems expensive considering the growth outlook for this small firm and it does not have profits over the last year. Seeking Alpha rates its growth outlook with a B-.

10x Genomics Earnings, Valuation, And Free Cash Flow Forecasts

Looking ahead, corporate event data provided by Wall Street Horizon shows several FDA Advisory Committee meetings through November. Often important health care drug and device development news breaks at these meetings, so they could move the stock price.

More certain, though, is volatility around 10x's upcoming Q3 earnings date, which is unconfirmed for Wednesday, Nov. 2. The company missed on bottom-line estimates in its last three EPS reports.

Corporate Event Calendar

The Technical Take

TXG is in a clear bearish downtrend. The stock went public in 2019, and shares quickly rallied from $50 to a high above $200 by the middle of last year. As speculative fervor petered out, so too did shares of 10x. The stock broke an important support level in the $125 to $130 range then went on to plummet to a low just this month near $25. There was brief support in the mid-$50s earlier this year, which then became resistance in Q2 and Q3. Finally, near-term resistance is seen in the $32 to $33 area - the July low and October rebound high.

With such a pronounced downtrend, the implication is for lower prices ahead. Bulls can look out for possible positive divergence on the RSI indicator to help find a low but calling a bottom here would be a foolish technical call.

TXG Shares Plunge With No Support In Sight, Monitor RSI

The Bottom Line

With a host of strong stocks in the biotech and life sciences areas, I would look for alternatives to TXG. The company does not show imminent fundamental or technical reversal signs.

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