The past year was tough for investors in Ginkgo Bioworks (DNA -13.85%) would be a massive understatement. As of August 14, shares of the synthetic biology company had fallen 86% in 2024.

A low price is not the only sign with which the stock market signals low expectations. Ginkgo shares are trading at a strongly negative enterprise value.

The company is debt-free and had $730 million in cash and cash equivalents at the end of June. However, its stock price has fallen so much that at current prices, each outstanding share could be purchased for just $524 million.

DNA market cap data by YCharts.

Paying less than cash for a cutting-edge life sciences company seems like a great bargain. On the other hand, stocks generally don’t trade at negative enterprise values ​​unless investors have a good reason to expect big losses.

Let’s compare the reasons to buy Ginkgo with the reasons to avoid the stock to see if it’s a bargain at its low price.

How Ginkgo Stock Could Outperform

Ginkgo Bioworks is a pioneer in the emerging synthetic biology market, where other companies hire the company to breed new microorganisms, such as yeast and bacteria, that produce high-value ingredients, including novel therapeutics, food ingredients and chemicals traditionally derived from petroleum.

The company’s automated foundry lowers the cost of developing new organisms. But lower foundry costs aren’t the only advantage Ginkgo has over potential competitors. Data is collected every time its foundry is run. Over time, the company can mine its trove of data for insights that make its operations even more efficient.

So far, the company hasn’t been able to make ends meet, but downsizing will cut costs. In June, the company began laying off 35% of its workforce, which is expected to reduce operating costs by about $85 million annually through the end of 2026.

Ginkgo launched 18 new cell engineering programs in the second quarter. These contracts vary, but most include downstream revenue opportunities. Not every program will be successful, but milestone payments and royalties from just a few could drive total revenue to new heights.

Why the share is falling

Ginkgo Bioworks’ stock has crashed because the company is losing money like a fast-growing startup trying to gain market share. The losses wouldn’t be such a big problem if the business was growing quickly, but the opposite is true.

In the first half of 2024, Ginkgo reported total revenue that fell 42% year over year. Total operating expenses fell, but not nearly enough, and the company lost a whopping $383 million in the first half of the year.

While reducing headcount is the right move, it’s like putting a Band-Aid on a bullet wound. At the current cash burn rate, Ginkgo will have to ask investors for more capital long before the recent headcount reductions reach the planned annualized savings of $85 million.

Now a bargain?

The company value of the stock is now negative, but it is only a bargain if you assume that it will soon stop making losses and start making profits. Unfortunately, that does not seem likely.

Founded in 2008, Ginkgo had completed 129 programs as of June 30, in addition to the 140 it already had in production. If its foundry were truly valuable to the customers who hired it, there would be plenty of milestone payments and licensing revenue to report.

Unfortunately, royalties still do not represent a significant portion of total revenue. In addition, the company has not reported any milestone payments this year.

Recently, management has begun removing the downstream value portion from certain program types. This seems like a step in the right direction that could lead to more predictable cash flows, but it does not yet make the business a smart investment.

Ginkgo Bioworks stock may seem like a bargain with its negative enterprise value, but it is not. Regardless of your risk appetite, you may be better off avoiding this stock until its earnings turn positive.