- Analysts at Goldman Sachs have downgraded Cue Health and slashed their price target for the diagnostics startup after identifying doubts about its ability to generate sustainable revenues.
- Cue was one of a clutch of small companies that grew quickly in the pandemic and now faces a race to ramp up new growth drivers to compensate for the collapse of COVID-19 testing sales.
- In a note to investors, the team at Goldman Sachs warned that switching focus to non-COVID-19 tests will mean taking on “a competitive Point of Care (PoC) market where larger companies with financial resources have an established installed base that may be difficult to displace.”
Cue made its name as the company that provided a PoC test for use by the NBA to help basketball games go ahead amid the disruption of the first year of the pandemic. As money flowed into the company, Cue grew its headcount from 99 to 1,500 in two years. Then the COVID-19 testing bubble burst.
Over the past year, Cue has laid off hundreds of people and worked to establish revenue streams that will support it beyond the pandemic. Investors are skeptical. Shares in Cue have fallen 88% over the past year, sinking to well below the Goldman Sachs analysts’ old price target of $2.75. The stock closed last week at $0.60. The analysts have reset their 12-month target to $0.75.
In explaining the cut and decision to downgrade Cue from a Buy to Neutral rating, the analysts expressed a belief that “there remains uncertainty whether a long-term sustainable level of revenue can be driven by non-Covid testing such as Flu, RSV and STI.” Cue is looking to those areas to support post-pandemic growth but, as the analysts note, that means competing against Abbott, Danaher and Roche.
“In order to displace the current competition, we believe [Cue] will need to have significant financial resources to support their commercial activities as they broaden their test menu,” the analysts wrote.
The analysts think Cue’s platform has cost, throughput and connectivity advantages and called its efforts to expand into the pharmacy and lab sectors “promising.” However, increasing the base of installed PoC platforms remains the main growth opportunity, according to the analysts, and the Goldman Sachs team warns that effort will take time and face intensifying competition.