Can This Beaten-Down Cathie Wood Stock Bounce Back?

Equities are still in a bull run. The S&P 500 is up by 22% so far in 2024. Not every company has come along for the ride, though. Exact Sciences (NASDAQ: EXAS), a cancer-focused biotechnology company, has seen its shares drop by 4% year to date.

However, the stock does remain a holding of Cathie Wood's investment management firm, Ark Invest -- albeit a small one, as of this writing. Should investors follow Wood's lead and stick with Exact Sciences?

What's going on with Exact Sciences?

Exact Sciences is best known for Cologuard, its at-home, non-invasive stool test for colorectal cancer. The company has helped screen millions of eligible patients, likely saving many lives. That's because colorectal cancer is the second-most-common cause of cancer deaths in the world, despite being highly treatable when caught early.

Translation: Not enough people are being screened. Cologuard has been Exact Sciences' main growth driver for a while. The company's revenue has increased significantly in the past decade, even considering pandemic-related disruptions.

EXAS Revenue (Annual) data by YCharts.

However, the company faces at least two problems. First, it remains unprofitable. In the second quarter, Exact Sciences revenue increased by 12% year over year to $699 million, but it reported a net loss of $0.09 per share -- although that was much better than the loss per of $0.45 it recorded in the year-ago period. Progress on that front is good, but investors want to see the bottom line come out of the red, especially since Exact Sciences' revenue isn't growing as fast as it once did.

That brings us to our second point: In July, the Food and Drug Administration (FDA) approved Guardant Health's Shield blood test for colorectal cancer. If this new, competing diagnostic product takes significant market share away from Cologuard, Exact Sciences could be in trouble.

Some reasons for optimism

Here's the good news. In early October, Exact Sciences earned FDA approval for Cologuard Plus, a new iteration of its crown jewel test. How does it compare to Guardant Health's Shield? It's at least as good.

The two key measures of the accuracy of a cancer test are sensitivity (true positives) and specificity (true negatives). Cologuard Plus has an overall sensitivity of 93.9%, compared to Shield's 83.1%. Meanwhile, the next-gen Cologuard test's specificity for advanced neoplasia (including colorectal cancer and precancerous lesions) was 90.6%, compared to Shield's 89.6%.

Cologuard's better performance on both measures should allow it to remain highly competitive, especially considering there is still plenty of room for it to expand its footprint among patients who aren't being screened. The company estimates that there remain about 60 million unscreened Americans between the ages of 45 and 85 -- the test is recommended for those over 45 who are at average risk for colorectal cancer.

Further, Exact Sciences has argued that some physicians hesitated to prescribe the previous version of Cologuard because of a relatively high rate of false positives. The new Cologuard is better than the old one in this regard, which should help get more physicians on board. Lastly, Cologuard Plus costs 5% less to produce than the original test, according to management. This should help Exact Sciences decrease its cost of goods sold, potentially increasing its bottom line.

Is Exact Sciences a buy?

Exact Sciences is developing other products, including a potential multi-cancer screening test. Cologuard will remain its main growth driver in the medium term, though, and the franchise looks more promising now with the approval of its new-and-improved version. While the red ink on the bottom line remains an issue, Exact Sciences is also making headway on that front -- progress that Cologuard Plus should enhance.

Overall, Exact Sciences' future does look promising. This Ark Invest stock could deliver solid returns to patient investors, which makes it worth investing in today.

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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Guardant Health. The Motley Fool recommends Exact Sciences. The Motley Fool has a disclosure policy.