Here's Why Genomic Health, Inc. Gained 14.8% in September

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What happened

Shares of Genomic Health (NASDAQ:GHDX) rose nearly 15% last month, according to data provided by S&P Global Market Intelligence. There wasn’t any news that pushed shares higher, but the genetic testing leader has finally turned a corner in 2018 and is now delivering profitable growth for shareholders. That sets it apart from most other genomics stocks, which has caught the eye of investors interested in the high-growth space.

However, shares of Genomic Health have dropped nearly 11% since the beginning of October. Should investors be concerned? Or is the stock price slide mostly explained by a general cooling down of the broader stock market?

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So what

In the second quarter of 2018, Genomic Health delivered revenue growth of 14% compared to the year-ago period. It also reached an important milestone: profitable operations. The business posted operating income of $7.1 million during the period.

While that doesn’t seem like much, it compares favorably to a $4.4 million operating loss in the first quarter of 2018. The company’s first-half 2018 operating income of $2.7 million also stacks up pretty well next to industry peer Invitae, which posted an operating loss of $66 million in the first six months of this year. 

Both companies are poised to continue delivering growth, but Genomic Health has a huge advantage by boasting profitable operations — meaning it won’t need to dip as heavily into external funding sources going forward or can do so on more favorable terms.

Now what

The continued momentum of Genomic Health stock is largely being driven by investors catching on to the fact that the business is a lower-risk play in the genetic testing space. With that in mind, the nearly 11% drop since the beginning of October hasn’t been driven by anything concerning for investors. It instead appears to be a response to both the stock’s recent run-up (shares more than doubled from the beginning of the year to the end of September) and Mr. Market adjusting for a historically expensive stock market.

Long-term investors interested in owning a piece of the fast-growing genomics space may want to give Genomic Health stock a closer look.

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Genomic Health. The Motley Fool has a disclosure policy.