Bionano Will Eventually Return to Earth Due to Its Weak Fundamentals

Stocks to sell

Genomics stocks have gained a lot of steam in the last six months, as retail traders pour their capital into high-risk, high-reward areas. One of the beneficiaries of this trend is Bionano Genomics (NASDAQ:BNGO), a life sciences firm working on some of the most exciting aspects of the genetic analysis industry. So it’s not surprising that BNGO stock is up 160% in the last three months.

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Since March 15, though, the shares have given up 17%, making them a bit more attractive for those who want exposure to this rapidly growing industry. The Saphyr platform, Bionano’s main product, will help researchers and clinicians accelerate the study of chromosomal changes, a field known as cytogenetics.

According to a research report by Grand View Research, the global genomics market size is forecast to grow to $62.9 billion by 2028 from $20.1 billion in 2020, growing at a compound annual growth rate  of 15.35%.

Overall, BNGO stock seems like an excellent investment. However, the explosive growth that the stock has already experienced will keep value investors from buying it. Plus, to justify the valuation of the shares, the fundamentals of the company need to improve substantially.

In 2020 alone, the company’s sales declined by 38.5% in comparison to 2019. Bionano attributed the decline to the novel-coronavirus pandemic, saying that labs were hesitant to make purchases last year.

However, as InvestorPlace columnist Matt McCall points out, the company’s top line  sank 26.67% in 2019.  What’s more, its operating margin, net margin, return on assets, return on equity, and ROIC were all in the red as of its last reported quarter.

So Bionano still has a lot of work to do. But I would keep my eye on this name because it’s in the high-growth genome sector.

Why Investors Shouldn’t Be Too Excited About BNGO Stock

There is a lot to like about the Saphyr platform. Yet Bionano’s sales growth is sluggish. So BNGO stock is not rising due to the company’s fundamentals. Instead, it’s become a day trader’s delight.

On top of all this, management has decided ‘to make hay while the sun shines’ by issuing a massive amount of stock, taking advantage of the large increase in the company’s stock price.

The life sciences firm currently offers four products: Its Saphyr platform for genome mapping, its Irys genome mapping data sets for plant and animal research applications, its prep kits used to extract genetic materials for testing on its two platforms, and hardware and software for analytical tasks. Out of all these items, only the final one offers an opportunity for strong recurring revenues.

BNGO stock started trading in September 2018 for $8 per share. Soon after, it fell rapidly, leading to fears of delisting. The equity market boom and overenthusiastic day traders are pushing the stock upward, but how long this phenomenon will last is anyone’s guess. As of Dec. 2020, its outstanding share count had ballooned to 278.7 million from 10.1 million in December 2018. That figure does not include the impact of warrants.

In a form 10-Q, the company said that further dilution could be on the way:

“Our ability to execute our operating plan beyond the first quarter of 2021 depends on our ability to generate sales and obtain additional funding through equity offerings, debt financings or potential licensing and collaboration arrangements, and on our ability to maintain compliance with the terms of our debt financing agreements.”

Light at the End of the Tunnel

Saphyr is an excellent platform for several types of entities. Bionano has conducted several studies pitting its system against other conventional cytogenetic methods, including karyotyping, FISH, and/or chromosomal microarray. The results show that the system fares well against these traditional platforms.

And in August 2020, Bionano purchased Lineagen, a biotechnology company that offers genetic testing services for the victims of childhood neurodevelopmental disorders. Due to the merger, Lineagen’s client base has expanded greatly beyond the typical research institutions and labs.

The Bottom Line

Bionano is an interesting company that has an innovative product. But it has been in business since 2003, and there is still not much to write home about in terms of its sales and profitability. Against this backdrop, Bionano’s ballooning SG&A expenses and R&D costs only add more weight to the argument that it is just finding its feet.

In the last few months, the company has shown some signs of progress, and investors will look favorably at its acquisition of Lineagen. However, will that be enough to sustain the shares at their current levels? The short answer is, “no.”

On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Faizan Farooque is a contributing author for and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.