Ginkgo Bioworks is expanding so quickly that it could slow down a lot and still two times.

Cathie Wood’s ARK Innovation ETF (NYSEMKT: ARKK) is known for its investments in game-changing growth stocks backed by high-tech companies at the leading edge of science, making Ginkgo Bioworks ( DNA 7.82%) a very typical holding.

Using a ruthlessly optimized symphony of robotics, genetic engineering, data science, and automated cell culture technologies, the company’s approach to providing cell-based manufacturing services is entirely without precedent. And with multiple potentially disruptive innovations in play, it just might be a great investment over the coming years.

In fact, its shares might even double in value over the next three years, even if it doesn’t undertake any additional new initiatives to expand its operations. Foundry revenue is ramping up

The most obvious reason Ginkgo’s stock could double before the end of 2025 is that demand for its core services is rising sharply , leading to very rapid revenue growth.

The biotech’s business model is to take customer-provided genetic blueprints for microorganisms and efficiently culture the bioengineered critters at scale. Then, the bacteria or yeast cells are maintained in bioreactors that feed them the nutrients needed to produce whatever the customer specified. That could be proteins for use in plant-based meat substitutes, small molecules for consumer products, industrial enzymes, or even nucleic acids used as components in certain medicines. Right now, management anticipates the company will make between $425 million and $440 million in total revenue for 2022, with as much as $180 million coming from its biofoundry operations described above.

It also provides biosecurity services, principally coronavirus surveillance testing for schools and airports, expected to bring in more than $260 million this year. But Ginkgo’s long-term investing thesis very much depends on its foundry segment, as that’s where it plans to create significant competitive advantages in the form of heavy automation of its cellular manufacturing operations.

And its foundry services are also where it has the best chance to double in value. In the second quarter, its foundry revenue exploded by 105% year over year, contributing significantly to its top-line growth of 231% compared to the same quarter in 2021. In the last 12 months, it added 14 new customers, an increase of 64%, and more are likely waiting in the wings. Furthermore, its investment in automation has driven down its unit costs to program cells by around 50% per year since 2015, which management claims makes its approach at least five times cheaper than the alternatives.

So between its gold-rush-like revenue growth, falling core costs, and a hearty helping of biosecurity sales to support the top line… Doubling in 3 years is still a long shot, but it could happen

Let’s do a back-of-the-napkin calculation to determine whether this stock has a realistic chance of doubling in value in the next three years. At the moment, Ginkgo’s market cap is around $4.5 billion, so to double, it’d need to reach a market cap of $9 billion. The low end of management’s guidance for 2022 total revenue is $425 million, which will be our starting point.

Despite the company’s tremendous top-line growth over the last year, it probably isn’t sustainable for three years, so we can’t assume increases of more than 100%. The good news is that if the biotech can expand its revenue by 44% each year — a rapid pace, to be sure, but much more plausible than anything over 100% — it’ll hit roughly $1.3 billion in sales before the end of 2025. And if we multiply that $1.3 billion by the stock’s price to sales (P/S) ratio of 7.1, we get a market cap of just over $9 billion — right on schedule.

That means doubling by 2025 is entirely possible in principle, which could make the stock an attractive purchase for growth-seeking investors. Still, the risks of falling short are quite substantial. Ginkgo’s business model remains unvalidated because it isn’t profitable and no other competitors are using it. Likewise, the company will need to keep onboarding new customers (not to mention retaining existing ones) at a steady clip to ensure its revenue base continues to grow.

Of course, while none of that stopped Cathie Wood from investing, it probably should stop you if you’re uncomfortable with making a risky bet in a cutting-edge business. Should you invest $1,000 in Ginkgo Bioworks Holdings, Inc. right now?

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source This Cathie Wood Stock Could Double Within 3 Years — Here’s How

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