Bionano Genomics (NASDAQ:BNGO) stock might appear interesting at first blush. After all, the company has developed an optical DNA mapping instrument called Saphyr. It is a high throughput system – which looks like a printer from the outside – that allows genome variations to be rapidly identified.
However, upon taking a deeper dive into Bionano’s SEC disclosure form that was issued last month, it is evident that there’s no fundamental reason to be interested in its shares now.
BNGO stock did rise after the disclosure form, which is called a 10-Q, was released. But the rally doesn’t seem to have been caused by the company’s quarterly results that were included in the form. Rather, behind the advance were less logical forces, who have dubbed themselves “apes.”
“Apes” kind of reminds me of when Seinfeld’s George Costanza tried to seriously give himself the nickname “T-Bone.”
In any case, let’s start by delving into the rational reasons that BNGO stock should trade flat for awhile.
The 10-Q Paints a Concerning Picture
Investors who simply take Bionano Genomics’ revenue into consideration might believe that the company’s results are improving. Last quarter, its revenue increased to $3.168 million from $1.136 million during the same period a year earlier. Further, its cost of revenues was 67.1% of its top line in Q1, down from 75.35% during the same period in 2020.
Companies that sell more and reduce their cost of sales in many cases are able to significantly increase their profitability. Bionano Genomics however, did not do so. Basically its bottom line stagnated, as its net loss for last quarter came in at slightly under $10 million, down only slightly from a net loss of $10.5 million during the same period a year earlier.
Based on Bionano’s operational results, BNGO stock should be flat at best. Its cash flow statements, on the other hand, should worry the owners of the shares.
That’s because the company issued $328.64 million of common stock last quarter. As a result, Bionano had $362 million of cash as of the end of Q1, up from just $8 million at the same time a year earlier.
Investors should be worried about the dilutive effects that the additional shares will have on their stock. In ordinary times, such concerns would have caused Bionano’s shares to trade flat at best, and they more likely would have been declining. But these are anything but ordinary times.
BNGO stock has jumped from $4.40 on May 13 just before its earnings were released to $7.22 as of yesterday’s close. The explanation likely lies in the wild ways of the internet.
When another InvestorPlace columnist, Chris McDonald, wrote about Bionano Genomics a few weeks ago, he noted that over 13% of the company’s shares were being sold short.
Investors who take their cues from social media are hoping to trigger a short squeeze that will drive up the company’s shares. Meanwhile, the percentage of Bionano’s shares that are being sold short is climbing, approaching 14% as of the end of last week. The closer that figure gets to 20%, the higher the chances that a short squeeze will be triggered.
The “apes” will hold onto BNGO stock in the hopes that such a squeeze will materialize despite its negative earnings reports. Their coordinated action will ensure that its stock price will remain artificially inflated, while keeping the potential of a short squeeze intact.
Bionano Genomics remains interesting because its Saphyr system certainly has potential. The company sells cartridges for the system which are analogous to printers’ ink cartridges. Both the system and the cartridges may eventually generate meaningful profits for the company. But it’s clear that Bionano Genomics hasn’t yet cracked the code for squeezing the juice from either yet.
That doesn’t mean the company won’t become profitable down the road. But even if it does enter the black, the large number of shares of common stock that it’s issued should remain a real concern for investors.
The stock shouldn’t have rallied over the past month. That much is clear.
On the date of publication, Alex Sirois 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.