Penny stocks have a reputation for being volatile. And in 2024, it seems Renalytix (LSE:RENX) is carrying on with this legacy. Shares of the biotech diagnostics firm have exploded by more than 200% since the start of the year. And looking specifically at the past month, the group’s market capitalisation has surged by more than 360%!
What’s behind these skyrocketing returns? And is this business one of the best penny stocks to buy now? Let’s explore.
Opportunities in kidney disease
The world of healthcare diagnostics is vast and highly specialised. But in the case of Renalytix, the group is focused squarely on just one aspect – kidney disease. Using its KidneyIntelX AI-powered platform, clinical teams can catch early signs of kidney disease, resulting in better outcomes for patients.
The firm still has a long way to go before turning a profit. But unlike many penny stocks, Renalytix is already generating revenue from its technology. Considering kidney disease affects more people than cancer worldwide, the long-term potential is understandably exciting. And it seems the latest round of explosive share price growth is seen as further proof of this.
Earlier this week, the company received an unsolicited takeover bid. Another undisclosed diagnostics enterprise has taken an interest in Renalytix’s technology and submitted an offer to acquire the entire business. In response, management has launched a formal sale process, inviting other companies to make an offer.
The likely goal is to bring in other interested parties, triggering a bidding war that will drive the acquisition price higher, resulting in more money for shareholders. With that in mind, seeing the penny stock explode on this announcement isn’t a massive surprise. But is it too late to buy?
Investing versus speculation
Typically, when a company announces it’s entertaining an acquisition offer, the share price will jump to a point that’s near the offer price. But in the case of Renalytix, the offer is currently unknown. As such, it’s impossible to know whether the buyout price will be above or below the current market capitalisation of the company.
Yet if a bidding war were to commence, then this penny stock could continue to surge even higher. In this scenario, snapping up some shares today could prove to be a lucrative decision.
However, it’s important to realise that making such an investment right now is akin to pure speculation. After all, there’s no guarantee other companies will come in to make an offer. At the same time, the original offer isn’t set in stone and may not necessarily materialise.
But what if investors want to gain exposure to the kidney diagnostics market through this business? If an investment thesis is based on the underlying company rather than the potential for an acquisition, then some caution may be necessary, in my opinion.
Renalytix’s technology seems to be making waves. That’s an encouraging sight for any business. However, with the penny stock priced as if an acquisition is guaranteed, the valuation and fundamentals are currently out of whack.
Analyst forecasts for its 2024 fiscal year ending in June predict that sales will reach $6.15m (£4.85m). That puts the forward price-to-sales ratio at around 10 times. Needless to say, that’s not cheap, especially for a business that still has a lot to prove.
This post was originally published on Motley Fool
