Invitae (NVTA) stock drops nearly 42% after 277% surge

• NVTA surged 277% on Wednesday in a short squeeze.
• Invitae stock lost more than 40% of its value on Thursday.
• NVTA beat on top and bottom lines for Q2

UPDATE: Invitae stock is down more than 42% at $5.00 after Thursday's open. It appears the nearly 300% run-up on Wednesday was not about earnings but instead only due to a short squeeze. Then again, everyone already knew that!

Invitae Corporation (NVTA), a genetics healthy company, is seeing a severe sell-off on Thursday one session after nearly quadrupling. On Wednesday NVTA stock shot up 277% to $8.63. Now in Thursday's premarket, Invitae stock is down 23.5% to $6.60.

The company beat on top and bottom lines for the second quarter, producing adjusted earnings per share (EPS) of $-0.68 on revenue of $136.6 million. The top line beat consensus by half a milllion, and the adjusted EPS was ahead by 8 cents. Invitae's GAAP earnings were a scary $-10.87 per share, or $-2.5 billion, but more than $2.3 billion of that was non-cash impairments due to a falling share price. The market obviously wrote off the GAAP earnings portion.

Revenue was up nearly 18% YoY, which was owed to a variety of factors but especially the genetics offerings for women's health. That segment grew 27% YoY to $27 million. The largest segement, oncology, also grew 14% YoY to $81 million. 

The company reduced its cash burn to $147 million, which is down from both Q1 and the fourth quarter of 2021. Still the company is looking to burn around $150 million per quarter going forward, so the $737 million on the balance sheet does not seem like much of a cushion.

"One of management's top priorities includes finding the right option for our debt obligations due in 2024, and we continue to be in discussion with various parties looking for the most optimal solution," said CEO Ken Knight. 

This statement should worry investors, since it makes it all the more likely that Invitae will need to dilute existing shareholders by raising more equity sometime in 2023. This obviously would not have a great effect on the share price.

With about 25% of NVTA's float sold short going into earnings, the surge in the share price on Wednesday must have cause a good number of short sellers to close their positions by buying up shares, which then led to the unusual share price spike. This is only the latest short squeeze.

Invitae stock forecast

As you can see from the daily chart below, NVTA blasted through the 100-day moving average on Wednesday. The 200-day moving average just above $9.50 is the likely target. The Wednesday surge seemed to get stopped out at $9, which is also where the stock saw resistance for more than a month in March and April earlier this year.

As NVTA stock sells off after such a euphoric session, bulls may look to reenter once the share price reaches the 100-day moving average near $4.30. That level also coincides with the 161.8% Fibonacci extension.

NVTA daily chart