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Since December 2021, superstar investor Cathie Wood has been adding to her position in genetic-testing company Invitae (NYSE: NVTA) while many investors were doing just the opposite. The stock has declined more than 90% since that time. Wood’s latest Invitae transaction happened about a week ago, confirming her ongoing belief in this player.

As founder of Ark Invest, Wood is known for her interest in innovators and cutting-edge technology that may be overlooked today but could change the world tomorrow. This strategy helped her flagship Art Innovation ETF soar almost 150% in 2020 as investors favored growth stocks.

Wood also scored a win by getting in early on certain top-performing stocks like Tesla. Considering all of this, should you follow her into Invitae right now? Before deciding, let’s take a closer look at this struggling stock.

A genetic-testing specialist

Invitae sells a variety of genetic tests in the specialty areas of oncology, cardiology, pediatrics, and more. Doctors order a test, then patients provide a saliva sample and get their test results online. People often turn to these tests to determine their risk factors for certain genetic illnesses — and then possibly make lifestyle changes to prevent disease.

Invitae has grown revenue over the years, but the problem has been transforming that into profit.

NVTA Revenue (Quarterly) data by YCharts.

That’s why last year, the company launched a strategic plan meant to shift investment to its most profitable areas and pave the way to positive cash flow. As part of that effort, Invitae exited certain international geographies, cut jobs and office space, and worked to increase overall efficiency.

The company has made some progress, as we can see in the latest earnings report. For example, quarterly revenue, excluding exited geographies and businesses, rose about 1% year over year as women’s health, rare diseases, and the data unit each posted double-digit gains.

Invitae improved its cash-burn forecast for the year to the range of $220 million to $245 million from the range of $250 million to $275 million. And it boosted its non-GAAP gross margin for the eighth straight quarter.

These points are positive. But the company still is burning through cash — although at a slower rate — and continues to face other challenges, such as the level of insurance coverage for certain tests.

In the quarter, Invitae said lower-than-expected insurance payments weighed on oncology testing sales, and the company pledged to address this problem. It aims to push for improvement in payment rates and average payment per test.

Lowering revenue guidance

Meanwhile, Invitae lowered its full-year revenue guidance to the range of $480 million to $500 million from a forecast of more than $500 million.

Now let’s get back to our question: Should you follow Cathie Wood into Invitae?

Clearly, the company is involved in a promising industry. The U.S. genetic-testing market is expected to expand at a compound annual growth rate of 13% to more than $10 billion by 2027, according to Fortune Business Insights.

Invitae’s quarterly revenue increase in the three areas mentioned above is encouraging, as is the company’s ability to lift margins — but Invitae still isn’t out of the woods. Cash burn remains significant. And the reimbursement situation, as mentioned above, continues to weigh on the company’s growth potential. These two points will be key to watch in the coming quarters.

Today, Invitae shares trade around their lowest ever at about 0.4x sales. You can pick up one share for less than a dollar. If you like to bet on innovation and recovery stories and don’t mind risk, you may want to buy a few shares today.

But if you’re a cautious investor, you’re better off parting ways with Cathie Wood — at least regarding this stock — and waiting for a few more signs of progress from Invitae before jumping in.

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Adria Cimino has positions in Tesla. The Motley Fool has positions in and recommends Invitae and Tesla. The Motley Fool has a disclosure policy.

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