At the start of 2020, 3-D printing play Nano Dimension (NASDAQ:NNDM) didn’t seem like much. The company offered an intriguing technology, albeit with a seemingly narrow use case. NNDM stock had done little but go down since uplisting in 2016; below $3, it was off more than 95% from previous highs above $80 (adjusted for a 2019 1-for-10 reverse split).
As well, the balance sheet was not in great shape. Nano Dimension closed 2019 with $3.75 million in cash. It burned $13 million that year. Its 20-F filed with the U.S. Securities and Exchange Commission in March 2020 included a so-called “going concern” warning, the kind that precedes many corporate bankruptcies.
Investors reacted accordingly. By the start of 2020, Nano Dimension’s market capitalization was barely $10 million. It’s not a coincidence that when Yoav Stern was hired as chief executive officer in December of 2019, the company talked up his experience as a “turnaround executive.” Nano Dimension was in trouble, and arrival of the novel coronavirus pandemic seemed likely to seal its fate.
Of course, that’s not what has happened. The NNDM story looks amazingly, incredibly, different. The question for NNDM stock is whether it’s good enough.
More Cash, More NNDM Stock
Here we are in April 2021 and all of the numbers have changed.
The $3.75 million in cash at year-end has ballooned massively into a hoard of roughly $1.5 billion.
The NNDM stock price has more than tripled, to just above $8. Less than two months ago, it traded at more than twice as high. The $10 million market capitalization now is over $2 billion.
Of course, the reason the market cap is up more than 200x, and the share price less than 4x, is that Nano Dimension has issued a staggering amount of stock.
At the end of 2019, the company had 209 million ordinary shares — or about 4.2 million adjusted for 1-for-50 reverse split last year. (That reverse split applied only to the ordinary shares, not the American Depositary Receipts represented by NNDM stock.) At the moment, the share count is past 250 million.
Nano Dimension has done well with the offerings, getting a weighted average price around $6. But the market has cooperated, as well. At the end of 2019, Nano Dimension’s enterprise value (market capitalization less net cash) was about $10 million. The enterprise value — in theory, the valuation assigned the actual business — now is about $600 million.
Enter ARK’s Cathie Wood
The first important question on NNDM stock is: why? There are some legitimate reasons for the business to be worth more now than it was then. The novel coronavirus pandemic itself likely is a long-term positive. The supply chain disruptions caused by the pandemic only highlighted the value of investing in alternatives.
Indeed, other 3-D printing plays like 3D Systems (NYSE:DDD) and Stratasys (NASDAQ:SSYS) have soared in 2021. While those companies play in different markets, NNMD might have a bigger edge. Existing manufacturing of the printed circuit boards made by Nano Dimension equipment is heavily concentrated in Asia.
The balance sheet itself helps, even if the actual cash isn’t calculated as part of enterprise value. Again, even before the pandemic Nano Dimension had a very real chance of not making it through 2020 without a restructuring. The company itself said as much. Obviously, with $1.5 billion in the bank, the story has been very much de-risked.
And Nano Dimension has gotten some attention. Cathie Wood’s Ark Investments owns shares. Nano Dimension in fact is the 21st-largest holding of the Ark Autonomous Technology & Robotics ETF (BATS:ARKQ). That’s no small feat given that the fund’s largest holding is Tesla (NASDAQ:TSLA). Also NNDM is ARKQ’s largest stake in the 3D sector, some six times the holdings in DDD and SSYS stock.
Is $600 Million Too Much?
The next question is: is that good news enough? That in turn raises some smaller questions.
Among them, what exactly is the strategy here? Stern has said repeatedly that the plan is to use the cash for acquisitions. But it’s unclear why the company needed to sell this much stock. Nano Dimension generated less than $4 million in revenue in 2020. The pandemic was a factor, of course, but even 2019 sales were less than $8 million.
Plus, $1.5 billion in acquisition spend hardly seems necessary for acquisitions that are complementary to a business that size. For that spend, the actual Nano Dimension business seemingly would wind up secondary to whatever businesses were brought in.
Here’s another question: should NNDM stock be considered overvalued, given that Stern and his company are acting like it is? They’ve been enormously aggressive with offerings in 2021, raising $830 million at a weighted average price just above $11. In fact, Stern said in November that the company had enough cash for its acquisition strategy. It’s sold more than $1 billion of stock since.
But it hasn’t made a deal. According to Stern, that’s because of the rise of SPACs (special purpose acquisition companies), “companies are completely in ‘La La Land’ as much as they believe their value is.” If the sector has gone nuts, what does that mean for NNDM stock?
How Does This Play Out?
Admittedly, that question is somewhat less pertinent given the sharp pullback over the past two months. And it’s possible Nano Dimension creates that $600 million in value through smart M&A and/or growth in the legacy business.
Still, this is a business the market thought was worth $10 million just 16 months ago. It’s a business that hasn’t yet succeeded. And it has $1.5 billion in cash to spend — which truly is a double-edged sword.
Certainly, Nano Dimension’s position has changed dramatically over the past 16 months. But it’s where the company sits 16 months from now that matters. Personally, I’ll almost certainly be on the sidelines until then — but I’ll admit to being fascinated as to how this all plays out.
On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article.
After spending time at a retail brokerage, Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets.
