Why Shares of GeneDx Dropped Wednesday

What happened

Shares of GeneDx (NASDAQ:WGS) were down 12% for the day late Wednesday afternoon after the company announced it is proposing a reverse stock split. The company is a whole genome- and exome-testing specialist that focuses on genetics to inform diagnosis, direct treatment, and improve drug discovery. It has a 52-week low of $0.22 and a 52-week high of $3.28. The stock is down more than 85% over the past year but up more than 53% in 2023.

So what

GeneDx, which until Jan. 9 had been known as Sema4, has been consistently trading below $1. To avoid being delisted on the Nasdaq Stock Market, the company's board of directors is proposing a reverse stock split from 1-for-10 to as high as 1-for-50, to be determined at the board's discretion. This was the biggest reason the stock is slumping, as a reverse split is rarely a good thing. The other bit of news in the filing was that the company planned to sell 22 million shares of stock, diluting it further for current investors.

Now what

The use of genome testing for better healthcare choices is expected to grow, but there's already plenty of competition in the field. Investors will likely stay away from GeneDx until the genetic testing company has positive financial news to report, and that may be a while. The company released fourth-quarter and full-year earnings on March 14, and it reported annual revenue of $234.7 million, up 11%, but it lost $548.9 million compared to a loss of $245.4 million in 2021. The most discouraging thing in the report was the company's revenue guidance for 2023 of between $205 million and $220 million, representing a loss of between 6% to 12%.

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Jim Halley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.