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Has Cathie Wood got it right on Ginkgo Bioworks?


Closely followed US fund manager Cathie Wood of Ark Invest has been buying Ginkgo Bioworks [NYSE:DNA] stock this year, but will probably be disappointed as the stock price has slipped since August from around $2.34 to trade currently at around $1.37. That said, with Ginkgo stock now at its lowest level since May, the biotech play is beginning to look like a bargain, given its fundamentals.

Ginkgo Bioworks, together with its subsidiaries, develops a platform for cell programming. Its platform is used to program cells to enable biological production of products, such as novel therapeutics, food ingredients, and chemicals derived from petroleum. The company serves various end markets, including specialty chemicals, agriculture, food, consumer products, and pharmaceuticals.

Ginkgo sits very much at the beating heart of cutting edge science and partners with some heavyweights in the space. It has a lot of credibility. Ginkgo Bioworks owns its own biosecurity and public health unit, called Concentric, which recently scored a grant from the US Centers of Disease Control and Prevention to head an innovation centre that will help the US prepare for another pandemic.

And the government of Serbia just announced it would be working with Gingko Bioworks to support start up companies in Serbia in the biology space. Within this accelerator project, start ups will be able to quickly leverage Ginkgo’s R&D services to progress projects that might otherwise need substantial investment in resources and infrastructure.

Perhaps most significantly for investors, the company said it is entering a strategic collaboration with Pfizer, which will see them working on RNA-based drug development. Pfizer will be using Ginkgo’s RNA technology to develop new proprietary RNA molecules within priority research domains. Ginkgo will receive substantial financial benefits from the deal.

Based on the last set of numbers from August, Ginkgo scores well on its income, but we can see that investors may be concerned about cash flow in the company. Free cash flow numbers are decent, but nothing special for the sector and for close peers.

For longer term investors, Ginkgo seems to have given up a lot of value since the end of the pandemic. This probably necessarily reflects the withdrawal of a lot of speculative capital out of the biotech space. A stock price that once traded at around $14 now looks like it is languishing. But from a scientific perspective, a lot of the work the company is carrying out is as relevant as ever, especially for medicine.

Ginkgo recently said it would be working with Penn State University on biosurveillance of 58 wildlife species, looking for SARS-CoV-2 and the prospects for potential spillover into humans. Given the disruption and loss of life caused by the pandemic in 2020, such efforts remain a high priority in the biosecurity sector.

According to Kurt Vandegrift, associate professor of biology at Penn State, “We know that SARS-CoV-2 is currently circulating in some U.S. wildlife, which raises the potential for new variants to emerge…recent evidence from deer in New York has revealed the continued circulation of variants long absent from the human population, indicative of persistence in the wild.”

It is entirely possible we will see a little more selling in Ginkgo stock. But there looks to be a potential buying opportunity emerging at around $1.15. DNA stock is starting to look cheap at this price. Should another SARS virus get out anytime soon, it also has the potential to be a 10 bagger.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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