Why has the Avita Medical (ASX:AVH) share price just hit a 2-year low?

We look at what’s behind the challenging time for the Avita Medical share price.

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It was a disappointing day for the Avita Medical Inc (ASX: AVH) share price as it hit a new 2-year low.

The regenerative medicine company has failed to regain momentum since the beginning of its fall from grace during the COVID-19 crash. Since its peak in February 2020, Avita Medical shares have plummeted 75% to their current position.

In the past month, there have been only two notable announcements from the skin restoration company. Let’s revisit these to grasp what’s influencing the company’s multi-year low share price.

One step forward, two steps back

Investor sentiment towards the Avita Medical share price is clearly swaying towards the negative. However, it hasn’t been all bad news for the RECELL spray-on skin system developer in recent weeks.

On 4 November, the medical technology company revealed that the US Centers for Medicare and Medicaid Services had approved Avita’s application for a new category code. In short, this means patients will now be able to offset the cost associated with the company’s RECELL burns treatment across hospitals and surgical centres.

Importantly, the news hinted at the possibility of widespread adoption of the company’s skin regeneration treatment. In turn, the announcement captured the excitement of ASX investors. This update resulted in a ~15% spike in the Avita Medical share price.

However, the excitement was short-lived as the company’s shares soured the following week. The downfall was triggered by Avita’s earnings report for the first quarter of FY22.

Interestingly, the company’s performance was surprisingly robust. For instance, total revenue increased 39% to $7.0 million. Meanwhile, gross profit margin improved 300 basis points to 85%. Perhaps investors had been hoping for an earnings positive quarter, while Avita delivered a loss of $5.9 million during the period.

Avita Medical share price snapshot

Despite the disappointing share price performance by Avita Medical over the last two years, on a longer timescale, it looks more positive.

From January 2019, the company’s share price has gained 153%. This equates to an annual growth rate of approximately 38.8% over the near 3-year time span. For comparison, the S&P/ASX 200 Index (ASX: XJO) has an annual growth rate of ~10.2% before dividends over the same duration.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended Avita Medical Limited. The Motley Fool Australia has recommended Avita Medical Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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