At first glance, you might dismiss Bionano Genomics (NASDAQ:BNGO) as yet another meme trade. Frankly, it’s difficult to avoid coming to that conclusion. For much of December, BNGO was priced at or around 50 cents. At time of writing, shares are trading hands at pennies above $7.50.
Nevertheless, as far as popular speculative vehicles go, you can do far worse than BNGO stock. Underlining the equity unit is a life sciences company that manufactures equipment for genome analysis. Bionano Genomics’ flagship product is Saphyr, a platform that advances innovations in novel diagnostics and therapeutic targets.
Better yet, industry experts believe the DNA sequencing market will increase significantly in size and scope. According to data from Grand View Research, the global genomics market size reached a valuation of $20.1 billion in 2020. By the end of this year, the market size could hit $23.5 billion. And for 2028, analysts forecast the sector to bring in revenue of $62.9 billion.
So, you can see the longer-term appeal for BNGO stock. As a formerly small-capitalization firm, getting a viable chunk of the DNA sequencing market could translate to explosive gains. And from that angle, it seems Bionano offers a credible fundamental argument.
However, I’m not entirely sure that this is really the case. Instead, it might be the same catalyst driving rookie investors to Bionano: the short squeeze. But is one arriving over the horizon?
The Good, Bad and Ugly for BNGO Stock
My InvestorPlace colleague Dana Blankenhorn aptly described the furor over BNGO stock. “Whenever I see a stock trending on the r/WallStreetBets subreddit, I get suspicious. Anyone can post there. They can say anything. There’s the reputation for pushing short-squeezes on failing companies. There’s just no credibility.”
Still, Blankenhorn acknowledged the bullish case for Bionano, writing that “Saphyr does not yet have FDA approval, although that doesn’t matter outside the U.S. It’s used in cytogenetics research, a market that management thinks could be worth $700 million to $1 billion/year.”
Further, he mentioned that “it’s not just the pajama traders” — a brilliant phrase by the way — who are bullish on BNGO stock. It’s got some mainstream support but is it worthwhile?
With so much chatter about short squeezes, I looked into this argument. As of June 14, the short percentage of float is nearly 14%. While there’s no hard and fast rule, generally speaking, a double-digit short share of float speaks to sizable negative sentiment. And, that number increased about 5% from the mid-May reading. Ordinarily, that’s not a great sign for a stock.
But these are not ordinary times. In this case, bad news could be good news if you’re trying to attack the bears. Still, the challenge with attempting to induce a short squeeze is the short ratio, which is 1.62. Basically, this stat means that short traders need fewer than two days — 1.62, that is — to cover their position based on the average three-month volume of BNGO stock.
Again, there’s no hard and fast rule regarding what is a “viable” short ratio. But the thing is, if I’m trying to provoke the bears, I don’t want them to be able to escape in a mere two days. Here, too many shares trade hands for the shorts to break one droplet of sweat.
Watch From the Sidelines
And that’s really the ugly side of the speculative trade for BNGO stock. Yes, many people are bearish on the underlying company and expect its equity unit to fail. But you must think multi-dimensionally with Bionano. It’s the combination of short position volume and readily available share count that makes the short-squeeze argument less credible than some of the other meme stocks.
In other words, it’s not enough that people are betting against BNGO (short percentage). You must also squeeze the playing field (short ratio). One is favorable while the other is not, meaning that you’ve got to rely more on Bionano’s non-meme-related catalysts.
Those do exist, don’t get me wrong. But so does the competition. If you’re the gambling type, I wouldn’t begrudge some speculation funds throw in. But for everyone else, you’re probably better off watching the drama from the sidelines.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.