Interactive Investor

Avacta: can this star stock pass another big test?

9th June 2021 07:56

Alistair Strang from Trends and Targets

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A 10-bagger since March 2020, the share price does not require much more work to give early signs for more happy days ahead, believes this analyst.

There seems considerable discussion as to what type of Covid-19 test is best. Today, once my eyes stopped watering after my own test, I took some time to review recent reports relative to Avacta Group (LSE:AVCT)

Glancing at some of their scientific information, only two numbers immediately stood out. Firstly, it appears the waiting time for results may be reduced to 20 minutes and, secondly, a comment of a 99%/100% success rate in diagnosis for their latest product, recently granted medical approval. 

Personally, I’m not interested in the difference between testing and, while it’s tempting to throw terms like 'PCR' or 'lateral flow test' into the sentence, my layman interest only wants the test to be accurate and avoid false positives (and false negatives).

When we reviewed Avacta last September, we teased with a chart showing 291p and a mention it was a region with substantial longer-term gains. It took until April this year for the price to top out at 290p, cheerfully close to our target level and a number capable of creating considerable optimism again for the future. Alas, while sitting in the nursing home car park today, time was also taken to glance at internet chatrooms to get a feel for what private investors are thinking.

One person was writing about the potential of the price heading to £40, another was promising £10 by Christmas. Thankfully, the majority of posters were embracing sanity while forgetting the 100:1 share split back in 2016 means a few long-term holders will need this share to reach above £50, just to break even. When we adjust the share price to accommodate this history, it’s certainly the case a miracle is arithmetically possible. Strangely, the price does not require much work to give early signs for happy days.

The immediate situation is pretty straightforward. Presently trading at around 238p, the share price now needs better 290p to enter a cycle where further growth toward 314p calculates as very possible. Should the 314p level be exceeded, we can supply 388p as a pretty impressive longer-term ambition. At this level, the share split 100:1 risks affecting everything as our software, rather exuberantly, projects the next target level at an insane looking 1,338p. Except, it’s not insane when historical share prices are adjusted to cope with the share split.

As always, we can paint an alternate scenario and, for Avacta, the share price needs below 176p to trigger alarm. Such a severe dip currently threatens reversal to an initial 137p with secondary, when broken, at a bottom of 86p and hopefully a bounce. Currently there are no warning signs suggesting this is probable.

Source: Trends and Targets. Past performance is not a guide to future performance

Alistair Strang has led high-profile and "top secret" software projects since the late 1970s and won the original John Logie Baird Award for inventors and innovators. After the financial crash, he wanted to know "how it worked" with a view to mimicking existing trading formulas and predicting what was coming next. His results speak for themselves as he continually refines the methodology.

Alistair Strang is a freelance contributor and not a direct employee of Interactive Investor. All correspondence is with Alistair Strang, who for these purposes is deemed a third-party supplier. Buying, selling and investing in shares is not without risk. Market and company movement will affect your performance and you may get back less than you invest. Neither Alistair Strang or Interactive Investor will be responsible for any losses that may be incurred as a result of following a trading idea. 

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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