The past six months have been a windfall for 10x Genomics’s shareholders. The company’s stock price has jumped 116%, setting a new 52-week high of $34.69 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now the time to buy 10x Genomics, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think 10x Genomics Will Underperform?
Despite the momentum, we’re swiping left on 10x Genomics for now. Here are three reasons why TXG doesn’t excite us, plus one stock we’d rather own.
1. Lackluster Revenue Growth
We at StockStory place the most emphasis on long-term growth, but within healthcare, a stretched historical view may miss recent innovations or disruptive industry trends. 10x Genomics’s recent performance shows its demand has slowed as its annualized revenue growth of 1.1% over the last two years was below its five-year trend. We’re wary when companies in the sector see decelerations in revenue growth, as it could signal changing consumer tastes aided by low switching costs. 
2. Fewer Distribution Channels Limit Its Ceiling
Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.
With just $638.8 million in revenue over the past 12 months, 10x Genomics is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.
3. Previous Growth Initiatives Have Lost Money
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
10x Genomics’s five-year average ROIC was negative 44.3%, meaning management lost money while trying to expand the business. Its returns were among the worst in the healthcare sector.
Final Judgment
10x Genomics doesn’t pass our quality test. Following the recent surge, the stock trades at $34.69 per share (or a forward price-to-sales ratio of 6.6×). The market typically values companies like 10x Genomics based on their anticipated profits for the next 12 months, but it expects the business to lose money. We also think the upside isn’t great compared to the potential downside here - there are more exciting stocks to buy. We’d suggest looking at the Amazon and PayPal of Latin America.
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