What a brutal six months it’s been for 10x Genomics. The stock has dropped 52.1% and now trades at $10.59, rattling many shareholders. This was partly due to its softer quarterly results and might have investors contemplating their next move.

Is there a buying opportunity in 10x Genomics, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Even with the cheaper entry price, we're sitting this one out for now. Here are three reasons why there are better opportunities than TXG and a stock we'd rather own.

Why Do We Think 10x Genomics Will Underperform?

Founded in 2012, 10x Genomics (NASDAQ:TXG) develops single-cell and spatial genomics solutions, enabling researchers to analyze biological systems at high resolution.

1. Cash Burn Ignites Concerns

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

10x Genomics’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 24.1%, meaning it lit $24.14 of cash on fire for every $100 in revenue.

2. Previous Growth Initiatives Have Lost Money

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

10x Genomics’s five-year average ROIC was negative 52.8%, meaning management lost money while trying to expand the business. Its returns were among the worst in the healthcare sector.

Final Judgment

10x Genomics falls short of our quality standards. Following the recent decline, the stock trades at $10.59 per share (or 2.1× forward price-to-sales). The market typically values companies like 10x Genomics based on their anticipated profits for the next 12 months, but it expects the business to lose money. We also think the upside isn’t great compared to the potential downside here - there are more exciting stocks to buy. We’d suggest looking at one of our top digital advertising picks.

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