Any time I see that Cathie Wood of Ark Invest holds a stock, I’m instantly curious as to why. In the case of Israel-based 3D printer Nano Dimension (NASDAQ:NNDM) stock, the veteran portfolio manager likes the fact it’s getting a lot of business from defense agencies.
The Ark Next Generation Internet ETF (NYSEARCA:ARKW) owns 5.6 million shares of Nano Dimension and the Ark Autonomous Technology & Robotics ETF (NYSEARCA:ARKQ) owns 6.9 million shares and is the ETF’s 21st largest holding out of 47.
Wood doesn’t turn her stocks too quickly, so that’s a big thumbs up for NNDM stock. That said, it’s no guarantee that the investment will pan out despite the fact Ark Invest’s got a nose for innovation.
Here are two things to consider before making an investment.
NNDM Stock Is Losing Altitude
As I write this, Nano Dimension’s share price is off about 16% for the past month. Most of that came in the final week of March. In February, it lost 28% of its value. Year-to-date, it’s essentially flat.
However, if you bought Nano Dimension at the beginning of the Pandemic, you’re sitting on a healthy one-year return of 865.7%. If you happen to be one of those lucky people, your view of 2021 is probably a lot brighter than the person who only bought on Feb. 1.
How fast has Wood grown her company’s assets?
Ark Invest’s Dec. 31, 2016, 13F report shows assets of $275 million. At the end of December 2020, they were $37.6 billion. A big part of that’s new funds flowing into Ark Invest’s ETFs combined with capital appreciation from stocks like Tesla (NASDAQ:TSLA) and others.
While NNDM stock’s been losing altitude in 2021, its DragonFly LDM 3D printing systems look ready to resume their growth.
Q4 2020 Sequential Growth
Covid-19 did a number on Nano Dimension’s sales. Businesses slowed their capital spending plans. As a result, revenues in 2020 dropped by 52% to $3.4 million from $7.1 million a year earlier. On the plus side, its Q4 sales of $1.97 million were flat to Q4 2019 and 350% higher on a sequential basis from the third quarter.
Thanks to $71o million in equity funding in 2020, it finished 2020 with $670 million in cash on the balance sheet.
Two subsequent offerings in 2021 raised an additional $833 million in gross proceeds, lifting its cash balance to almost $1.5 billion at the end of February with no long-term debt on the books.
That will help cover losses for several years. In 202o, it lost $48.5 million, up from an $8.4 million loss in 2019. Most of the loss was due to increases in share-based compensation.
That’s not unexpected from a growth technology company.
The important thing is Nano Dimension’s growth engine reignited in the fourth quarter. Investors can expect further growth in Q1 2021 and beyond.
The Negative Underbelly
In early March, before Nano Dimension released its fourth-quarter results, InvestorPlace’s Mark Hake discussed how investors had caught on to the company’s dilutive fundraising.
At the end of September 2020, 46 million shares were outstanding. Eight at-the-market share sales later, its shares outstanding had risen to 244.4 million, a 431% increase in its share count over five months through the end of February.
So, for example, if you held 10% of its stock last September, good for 4.6 million shares, five months later, your piece of the pie had shrunk to 1.9%.
“[T]he company has raised so much money, $1.489 billion, that its remaining cash balance, $1.452 billion, represents 61% of its $2.371 billion market value,” Hake wrote.
“Another way to put this is that cash now equals $5.94 per share (i.e., $1.452 billion divided by 244.44 million shares).”
My colleague also pointed out that the company was having trouble finding an acquisition to accelerate its growth. Special purpose acquisition companies were flooding the M&A space with money to burn. As a result, he felt the NNDM share price would likely retreat to $6.60 a share, or about 10% higher than the company’s amount of cash per share.
Trading at 615x its actual 2020 sales, 412x 2021 estimated sales of $5 million and 50x estimated 2022 sales, NNDM stock is definitely expensive.
At the end of December, Ark Invest had 8.39 million shares worth $74.6 million. That represented 0.2% of the investment manager’s total assets under management. Cathie Wood can wait for NNDM to make a move with its cash to justify the massive valuation it’s been given by investors.
On a scale of one to 10, with one being little risk and 10 being a lot, I’d say Nano Dimension is a solid six. I’d be hesitant to put something like that in a tax-advantaged account unless it was part of an ETF such as ARKQ.
If you do buy, I like Hake’s suggestion to buy between $6 and $7. Just be ready for a lot of volatility.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.