Biotechnology company Predictive Oncology Inc. (POAI) operates a data and artificial intelligence (AI)-driven platform to develop personalized cancer therapies. The company’s subsidiaries — Soluble and TumorGenesis — are constructing new GMP facilities, which attracted investor attention. Its shares have surged 20.2% over the past month and 78.9% year-to-date. However, the stock is trading 43.9% below its 52-week high of $2.30, indicating short-term bearishness.

POAI’s strategic collaborations are helping to build next-generation tools for treating complex diseases and unique services to meet the needs of its patients better. This could drive new revenue growth opportunities. However, the highly competitive oncology drugs market and the company’s faltering financials could make investors anxious.

Here’s what could influence POAI’s performance in the near term:

Increasingly Competitive Oncology Market

The global oncology drugs market is expected to reach $167.52 billion in 2021, growing at a CAGR of 4%. With several pharmaceutical companies increasingly investing in technologies such as artificial intelligence (AI) to identify potential drug candidates with higher success rates, the oncology drugs market has become increasingly competitive. As key players in the industry remain committed to controlling costs and shrinking the drug development timeframe to win in the race to debut new treatments, competition is expected to remain fierce in the coming years. This competitive landscape could make it difficult for relatively smaller players like POAI to survive in the market.

At-the-Market Offering of Shares

In June, POAI closed its previously announced direct offering of 15.5 million shares of its common stock priced at the market, with gross proceeds of approximately $21.34 million. In addition, it issued warrants with an exercise price of $1.25 per share that would become exercisable upon the company increasing its capital stock to 200 million shares. It plans to use the net proceeds of the offering for funding its working capital. However, this could negatively impact its stock price as it would lead to dilution of existing shares.

Lackluster Financials

POAI has generated total revenue of $350,207 for the second quarter that ended June 30, 2021, up 91.6% year-over-year. However, its loss from operating activities came in at $2.6 million, while net loss stood at $2.57 million for the quarter. Moreover, POAI’s loss per share amounted to $0.05. Also, its operating expenses surged 9% year-over-year to $567,796 over this period, mainly due to higher costs related to the staff and higher AI computing costs.

Poor Profitability

Its trailing-12-month ROE, ROA, and ROTC are negative 76.6%, 42.6%, and 20.3%, respectively. Also, its trailing-12-month cash from operations stood at a negative $11.06 million. Furthermore, POAI’s asset turnover ratio of 0.03% is 90.8% lower than the industry average of 0.4%. In addition, the stock’s trailing-12-month CAPEX/Sales of 64.7% compares with the industry average of 4.1%.

Stretched Valuation

In terms of forward EV/Sales, the stock is currently trading at 21x, 202.8% higher than the industry average of 6.93x. Likewise, its forward Price/Sales ratio of 42.19x is 448.7% higher than the industry average of 7.69x.

Unfavorable POWR Ratings

POAI has an overall grade of D, which translates into a Sell rating in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary ratings system also evaluates each stock based on eight different categories. POAI has a D grade for Quality. The stock’s negative profit margin is reflected in this grade.

Also, it has an F grade for Value, which is consistent with the stock’s higher-than-industry EV/Sales.

In terms of Stability Grade, POAI has a D. This is justified given its relatively high beta of 2.

Beyond the grades I’ve highlighted, one can check out additional POAI grades for Sentiment, Growth, and Momentum here.

Of the 505 stocks in the F-rated Biotech industry, POAI is ranked #305.

Click here to checkout our Healthcare Sector Report for 2021

Bottom Line

Even though POAI’s new GMP facilities, which are slated for completion by the end of this year, should help it deliver more targeted approaches to cancer therapy, the company’s weak fundamentals in a heavily competitive oncology market could threaten its growth. Meanwhile, its stretched valuation and negative profit margin could pose a risk to the stock. So, the stock is best avoided now.

How Does Predictive Oncology (POAI) Stack Up Against its Peers?

While POAI has an overall grade of D, you might want to consider taking a look at its industry peers, Qiagen N.V. (QGEN), Gilead Sciences Inc. (GILD), and Exelixis, Inc. (EXEL), have Strong Buy ratings.

POAI shares were trading at $1.34 per share on Thursday morning, up $0.05 (+3.72%). Year-to-date, POAI has gained 82.96%, versus a 17.34% rise in the benchmark S&P 500 index during the same period.

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.

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