InvestorQ : Why have clinical testing stocks like Thyrocare, Dr. *** Pathlabs, Metropolis Health and Krsnaa Diagnostics corrected so sharply in recent months?
Tisha Malhotra made post

Why have clinical testing stocks like Thyrocare, Dr. *** Pathlabs, Metropolis Health and Krsnaa Diagnostics corrected so sharply in recent months?

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Aashna Tripathi answered.
3 months ago
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Many of the testing and diagnostic stocks that had a good time during COVID times, have corrected sharply with the number of COVID cases coming down sharply. As the fear of COVID picked up in 2020 and the vaccination drive started, pharma stocks and diagnostic lab stocks gained the most. However, as intensity of COVID wanes, it is a return to reality. In the case of the 4 stocks mentioned by you, they are all sharply down from 52-week highs.

Here are some stock falls in the sector. Thyrocare peaked at Rs.1,465 in Jun-21 and corrected -40.2% to Rs.876. Dr. *** Pathlabs scaled a high of Rs.4,246 in Sep-21 but sharply fell -36.6% to Rs.2,692. The stock of 2021-listed Krsnaa Diagnostics fell -45.9% from a high of Rs.1,100 to Rs.595 in a span of less than 2 months. Finally, Metropolis Healthcare fell by -42.9% from Rs.3,580 in Dec-21 to Rs.2,042. Average fall has been around -40% from highs.

Why did this fall happen. Firstly, the COVID story started giving diminishing returns. In 2020, diagnostic and clinical testing stocks were in a sweet spot. That surge in demand for testing and clinical services is done and dusted and these gains are fading. Many investors opted to shift to the relative safety of traditional healthcare stocks. Then there were lower sales and missed earnings estimates in the Dec-21 quarter in all these four names.

Excess capacity is another problem in laboratory testing stocks. Most companies had aggressively expanded testing capacity through niche mergers and acquisitions. Today, most testing companies are left with excess slack capacity combined with the spill-over effect of the cost of expansion. Analysts are questioning if vaccines and testing labs can be a viable business model at all, going ahead. That is the billion dollar question.

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