BioNano Genomics Stock Is Crashing For a Reason

Even if you follow biotech stocks, I doubt that you had heard of BioNano Genomics (NASDAQ:BNGO) three months ago. The California-based company’s showcase product is Saphyr, a genome-mapping tool aimed at researchers. BioNano saw its revenue decline through 2020, and it spent most of the year as a penny stock. Last April, you could pick up shares for 28 cents. In December, BNGO stock suddenly rocketed in value. It peaked on Feb. 16 with a $15.57 close. That’s 2,953% growth in three months.

A scientist holding up her biotech experiment in a small Petri dish.
Source: Shutterstock

If that kind of growth seems suspicious, it is. This isn’t a company on the cusp of being the first to market with an effective Covid-19 vaccine. That kind of potential led to a number of relatively unknown biotech stocks spiking dramatically in 2020.

This is different. The rapid rise in BNGO stock is yet another example of retailer investors using Reddit to drum up interest in BioNano, driving up the share price.

The Reddit Effect Strikes Again

One of the big news stories of 2021 has been the Reddit effect. Retail investors have been using the platform to drive up the prices of many stocks that were previously struggling and attracting short-sellers. They have also used Reddit to put a spotlight on previously obscure companies, often ignoring fundamentals that traditional analysts and buyers rely on. Both strategies have resulted in a number of stocks suddenly soaring in value. Once reality kicks in, these stocks tend to see their valuation deflate almost as quickly.

That’s a big part of what’s happened with BioNano shares. 

The company reported its third-quarter results last November. Revenue was down 38.5% for the quarter, and down 38% over the first three quarters of the year. BNGO stock was trading in the 57 cent range at that point. Then, a spot of good news. The company received a 180-day extension from the Nasdaq to regain compliance by getting its share price above $1 resulted in BNGO popping in December.

But the real action started once retail investors on Reddit started talking up BioNano. Shares began to climb. With the rising price, BioNano took the opportunity to sell additional shares. In one two-session stretch, the stock gained 33%. However after closing at $15.57 on Feb. 16 — growth of nearly 3,000% in just three months — the inevitable correction began. On Tuesday, BNGO stock crashed hard, closing at $10.22 for a nearly 14% loss on the day.

What’s been happening with BNGO isn’t entirely attributable to Reddit, but without the Reddit effect it’s doubtful we’d be talking about BioNano right now.

Bottom Line on BNGO Stock

BioNano doesn’t get the degree of analyst coverage that headline-grabbing biotech companies have over the past year. CNN Money is following just four investment analysts that cover BNGO stock. For what that’s worth, three of the four have the stock rated as a “buy.” Their median 12-month price forecast of $14 has around 37% upside after Tuesday’s crash. However, there’s a dissenter in there with a 75 cents estimate.

That pretty much sums up the current mood around BioNano Genomics. The stock does have potential for growth — its technology has application in understanding how Covid-19 affects patients, which could have a big payoff. However, there’s an underlying suspicion that the Reddit effect didn’t just thrust this company into the spotlight, it hyper-inflated BNGO stock to a level that’s simply not justified or sustainable. That leaves investors today open to big losses if BNGO falls back to penny stock levels, where it spent most of 2020.

That’s why BNGO stock started to drop on Feb. 16 and why it crashed again on Tuesday.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

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