Weak Fundamentals Prove There’s No Reason to Buy Bionano Genomics

Based on my financial analysis I wouldn’t touch Bionano Genomics (NASDAQ:BNGO) now. I would run fast and far away from the BNGO stocks. But why? There are several reasons, and they all have to do with the basics.

BNGO Stock: A stylized image of a doctor touching a medical clamp on a DNA molecule

Source: Natali_Mis/ShutterStock.com

While the company has a positive catalyst here and there, sales and subsequent valuation leave a lot to be desired. BNGO’s stock performance has also been volatile, and its recent dilution only worsens the outlook for Bionano’s financial results.

BNGO stock: good news

The only good news about the company is that BNGO shares have been added to the US small cap Russell 2000® Index. According to Yahoo! Finance, the company announced in late June that it had joined the index. Membership is on an annual basis.

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In the announcement, Bionano Genomics CEO Erik Holmlin was optimistic about this development. He stated the following:

“Inclusion in the Russell indices enhances our company’s visibility as we continue to expand Saphyr’s installed base and potentially build the next major genomics company… We believe this milestone is a reflection of the growing awareness of optical genome mapping (OGM) , the significant progress our company is making toward OGM as part of routine use in genome analysis, including cytogenomics, and another step forward in raising awareness of Bionano among institutional investors.”

Now I agree that this is a very positive development. Institutional investors may become more interested in BNGO shares. But as always, you should be aware of what you are investing in. You should conduct a careful financial analysis of a stock’s valuation and fundamentals before buying it.

In this industry, I’ve heard the story “disrupt the industry” more times than I can remember, and Bionano Genomics is part of this phenomenon. I wish the company every success and hope it can accomplish its mission. However, BNGO shares are a pass for me.

It’s not that I’m biased against the company. Bionano Genomic’s positive catalysts just don’t outweigh the weak fundamentals.

Turnover and valuation to worry about

If you read my articles about InvestorPlace you probably know that I back up my investment thesis with fundamentals and valuation. Looking at the BNGO shares, I found several concerning numbers.

First of all, the company’s market cap is $1.61 billion revenue of only $8.5 million in 2020. This was the second consecutive year of sales decline as the company reported revenue of $10.13 million in 2019. That was a drop of 15.6% from Bionano Genomic’s 2018 sales.

Subsequently, the net result since 2016 has been negative. In 2020, Bionano Genomics saw a net loss of $41.08 million. EBIT after unusual costs has also been negative since 2016. The company therefore does not make any profit from its core activities on the basis of this data.

Finally, free cash flow was also negative over the same 4-year period.

After looking at this financial data, I’m not sure why anyone would buy BNGO stock. I don’t see any indication that it could potentially be a value or growth stock.

BNGO shares reflect weak valuation

In early 2021, the stock rose from less than $5 a share to a 52-week high of $15.69 in mid-February. The low price for the 52-week assortment is 47 cents. This is an astonishing (and puzzling) increase given that the company has not made a profit for the past 5 years.

Company issued $328.64 million common stock last quarter. The good news is that it has enough money to use for its business. The bad news is that this will have a very negative and dilutive effect on BNGO shares.

Profitability is absent for the time being and sales growth is weak. Combined with negative free cash flow and recent stock dilution, BNGO shares are still not cheap despite selling off since the 52-week high.

I believe that when the stock rose sharply in February, many investors realized it was time to take their profits and run. BGNO stocks have always been more of a speculative gamble, and the finances aren’t conducive to value or growth investments.

As of the date of publication, Stavros Georgiadis, CFA had no positions (directly or indirectly) in the securities referred to in this article. The opinions expressed in this article are those of the author, subject to the InvestorPlace.com Publication Guidelines.

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst and an economist. He focuses on US equities and has his own stock market blog on thestockmarketontheinternet.com/. He has written several articles for other publications in the past and can be reached on Twitter and at LinkedIn.

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