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2 Falling Knives to Catch

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The majority of analysts on Wall Street recommend buying Better Therapeutics Inc. (NASDAQ:BTTX) and Ginkgo Bioworks Holdings Inc. (NYSE:DNA) shares. That is surprising given these two stocks haven't performed well over the past 52 weeks ending May 10. With positive recommendations despite share prices tumbling more than 59%, these two companies have earned the status of "falling knives."

Typically, investors are interested in falling knives because they hope to earn significant returns after an expected stock price rebound. However, investors must be cautious with falling knives as these kinds of holdings carry a remarkable level of risk. The sharp drop in the stock's price could be a sign of ongoing problems - after all, investors have been selling them for a reason.


Better Therapeutics Inc.

Better Therapeutics Inc. (NASDAQ:BTTX) is a San Francisco, California-based developer of a digitally delivered cognitive nutrition treatment for type 2 diabetes called BT-001.

Shares closed at $2.19 per unit on Monday after falling 76.45% over the past 52 weeks.

2 Falling Knives to Catch
2 Falling Knives to Catch

The market capitalization is about $51.70 million, the 52-week range is $0.91 to $29.40 and the 14-day relative strength index is 57.7, suggesting the stock is still far from oversold levels.

Regarding its financial strength, GuruFocus assigned a score of 6 out of 10 to the company, which means the financials are llikely stable. As of Dec. 30, 2021, the company had $40.57 million in cash and cash equivalents, far exceeding the total debt of $9.51 million.

In terms of profitability, all of theses metrics are still negative as the company is in the development phase and is not yet generating much income. The stability of its balance sheet is likely due entirely to successful fundraising efforts.

The safety and efficacy of treating type 2 diabetes with BT-001 were evaluated in 669 adult patients with encouraging results. Indeed, the data from the pivotal clinical study indicates that the difference between Better Therapeutics' lead product plus standard of care, and standard of care alone was significantly in favor of the treatment. Patients with type 2 diabetes, a condition of chronically high blood sugar levels that can potentially lead to serious circulatory, nervous and immune system problems, were given the therapy for 90 consecutive days.

A six-month study, due to be completed in the second quarter of 2022, could fuel a share price recovery if they continue the promising results shown after 90 days of treatment.

On Wall Street, the stock has a median recommendation rating of buy with an average target price of $18 per share.

Ginkgo Bioworks Holdings Inc.

Ginkgo Bioworks Holdings Inc. (NYSE:DNA) is a Boston, Massachusetts-based company that develops and delivers cell programming technology to enable the biological production of novel therapeutics, food ingredients and petroleum-derived chemicals.

Shares closed at $2.38 per piece on Monday after declining 80.46% over the past 52 weeks.

2 Falling Knives to Catch
2 Falling Knives to Catch

The market cap is around $4.22 billion, while the 52-week range is between $2.32 and $15.86. The 14-day relative strength index of 32.5 is suggesting that the stock is not far from oversold levels after the significant downturn.

GuruFocus gave the company a 7 out of 10 financial strength rating, meaning conditions are good. As of Dec. 30, 2021, the company had $1.55 billion in cash and cash equivalents, while total debt was $23.03 million.

Ginkgo Bioworks Holdings Inc.'s profitability needs to improve sharply as all relevant financial indicators are negative except for its gross margin of 60.69% (vs. the industry median of 59.39%). This company's financial strength is also reliant on fundraising efforts.

In its most recent earnings results for the fourth quarter of 2021, Ginkgo Bioworks Holdings reported a 363% increase in total revenue to $148.5 million, but that's not enough to show a positive bottom line for its income statement. The net loss was $1.10 per share.

Commenting on the earnings results, Jason Kelly, Ginkgo's Co-Founder and CEO, said that the company is in its strongest position ever. He also identified climate change and food security as two of the greatest challenges of our generation and emphasized the importance of the company's technologies to address these issues. The company is focused on making it easier for engineers to deal with the biological reality when developing environmentally friendly therapeutics, food ingredients and chemicals.

Looking ahead to full-year 2022, Ginkgo expects total sales to be between $325 million and $340 million, up from sales of $313.84 million last year. Analysts call for average revenue of $333.03 million.

On Wall Street, the stock has four buys, one overweight recommendation rating and two holds. The average target price is approximately $8.75 per share.

This article first appeared on GuruFocus.