Twist Bioscience (TWST): Revenue +23% And The Loss Got BIGGER. Is TWST a Buy?

Twist Bioscience Corporation (TWST) Q3 FY2026 — Reported before the open (fiscal Q3 2026, the three months ended June 30, 2026). Revenue $118.4M, +23.2% — a ~$3.8M BEAT. Diluted loss per share $0.56 against a Street estimate near $0.50 — a 6-cent MISS. Adjusted EBITDA NEGATIVE $11.3M against NEGATIVE $8.0M — the loss WIDENED $3.3M. FY2026 revenue guidance RAISED to $456–457M from $442–447M. The stock opened at $81.73 (DOWN 10.7% from a $91.55 close), was green inside 15 minutes, hit $101.68 (+11.1%) by late morning, and traded at $95.65, up 4.5% — a 24% intraday range. The arithmetic nobody ran: revenue rose $22.3M, cost of revenues rose $11.2M, so GROSS PROFIT rose only $11.2M — a 50.0% incremental margin, BELOW the 52.8% Twist already earns. SG&A alone rose $17.3M. The entire incremental gross profit was spent, and $6.2M more with it. That is why adjusted EBITDA got WORSE one quarter before the promised breakeven. THE CALL: AVOID (3/5, THE COMPANY IS EXCELLENT. THE PRICE IS OUR BULL CASE.) — base-case value ~$51.0 vs ~$95.65 today. KEY METRICS: - CALL: AVOID 3/5 — fair value ~$51.00 vs $95.65 (about 47% BELOW). Two-step, because a company with no earnings and negative free cash flow cannot take an owner-earnings DCF. STEP 1 establishes how much REVENUE each breakeven requires at today's cost base: adjusted EBITDA breakeven (the promised one) ~$494M annualised; GAAP operating breakeven ~$708M; TRUE free cash flow breakeven ~$732M — against a $456.5M FY2026 guide. STEP 2 discounts what arrives after: base case 18% growth to FY2031 then 10%, FCF margin (AFTER stock comp and capex) travelling -12% to +20%, 10.5% discount, 18x exit = $47.28. Bear $14.27, bull $96.11. Weighted 25/50/25 = $51.23. - THE ARITHMETIC NOBODY RAN: revenue rose $22.319M ($96.057M to $118.376M) and cost of revenues rose $11.162M, so gross profit rose just $11.157M — a 50.0% INCREMENTAL gross margin, BELOW the 52.8% Twist already reports. SG&A alone rose $17.339M ($63.370M to $80.709M, +27.4%) on revenue that grew 23.2%. That single line grew 55% MORE than the entire gross profit added. All of the incremental gross profit was consumed and $6.2M more with it — which is exactly why adjusted EBITDA went from -$7.998M to -$11.326M in a quarter billed as the 14th consecutive quarter of growth. SG&A is now 68.2% of revenue against 66.0%. - TWO BREAKEVENS, ONLY ONE PROMISED: Twist's own adjusted-EBITDA definition excludes stock comp ($50.4M over nine months, 15.1% of revenue) AND all capital spending (~$29M, from PP&E $102.3M to $111.9M against $19.4M of D&A). Adjusted EBITDA of -$38.1M less those two is roughly NEGATIVE $118M of genuine free cash flow in nine months. Real FCF breakeven needs ~$732M of annual revenue at today's cost base — about fiscal 2029 at 18% growth, against a $456.5M guide. - THE PRICE IS OUR BULL CASE, EXACTLY: at $95.65 across ~62.3M shares the market cap is ~$5,959M and, net of $166.8M of cash with NO DEBT, the enterprise value is ~$5,792M — 12.7x the FY2026 revenue guide and 10.8x our FY2027 estimate. Our BULL DCF at a 10.5% discount rate (24% growth for five years, 13% for five more, FCF margin reaching 26% by FY2036 = $641M) produces $5,821M of enterprise value and $96.11 a share. There is no margin of safety left. Note also that gross margin, which the release quotes as +120bps sequentially, was DOWN 64bps year on year (52.8% vs 53.4%). - THE BULL CASE, AT FULL STRENGTH: 14 consecutive quarters of sequential growth through the worst life-science tools downturn in twenty years. DNA Synthesis and Protein Solutions $56.6M, +39% YoY and +6% sequentially, pulled by AI-enabled drug discovery; NGS Applications $61.8M, +12% and +8%. Guidance raised so far that the TOP of the old range ($447M) is now BELOW the BOTTOM of the new one ($456M), implying a Q4 growing ~25%. Nine-month gross margin up 165bps to 52.1%. ~369,000 genes shipped vs ~237,000 (+56%), ~2,650 customers vs ~2,480. $166.8M of cash and investments, ZERO debt, $445.7M of equity. This is a valuation call, not a solvency one. What to watch: Bullish: a genuinely POSITIVE free cash flow quarter (not adjusted EBITDA breakeven — real cash after stock comp and capex); gross margin above 56% (the terminal FCF margin in our model is capped by the gross margin); DNA synthesis sustaining growth above 35% for two more quarters. Bearish: SG&A growing faster than gross profit for a fourth consecutive quarter; the Q4 adjusted EBITDA breakeven being missed or quietly redefined (watch the November language — 'approaching breakeven' is not breakeven); NGS Applications decelerating below 10% growth. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.