The last time I wrote about the Israeli 3D printer Nano Dimension (NASDAQ:NNDM) was in early April. I was intrigued about the company because two of Ark Invest’s ETFs owned NNDM stock.
Fast forward to mid-July. Ark Invest Chief Executive Officer and portfolio manager Cathie Wood has added to her positions.
In the case of Ark Next Generation Internet ETF (NYSEARCA:ARKW), it’s added more than two million shares of NNDM stock. As for the Ark Autonomous Technology and Robotics ETF (NYSEARCA:ARKQ), the star portfolio manager’s upped the fund’s stake to 7.64 million shares as of July 13, up from 6.9 million at the end of March.
More importantly, its position in the fund has improved four spots to the 17th spot.
If it cracks the top 10, look out above.
Wood likes Nano Dimension’s future potential. But does that mean average investors should buy NNDM stock? Yes and no.
You Sure Should Buy NNDM Stock
When I wrote about Nano Dimension at the beginning of April, it had been on one heck of a roller-coaster ride early in 2021.
First, it jumped out of the gate in January, gaining 51%, closing the month at $13.74. Then, in February, it gave most of its gains back, losing 29% on the month. Finally, it lost another 13% in March and was trading below where it ended in 2020.
“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,” I wrote on April 1. “If you do buy, I like Hake’s [InvestorPlace contributor Mark Hake] suggestion to buy between $6 and $7. Just be ready for a lot of volatility.”
Since those fateful words, NNDM has traded between $6 and $7 on two occasions. The first was on April 19, when it closed at $6.64. The second was a much longer run, trading in this range for 16 consecutive days in May, including dropping as low as $5.39 on May 13.
As I write this, it’s down into the $6s for the third time since April 1. So now might be an excellent time to buy its stock.
That’s because market conditions appear to be improving as Covid-19 restrictions are relaxed across the globe.
“As Nano Dimension CEO Yoav Stern explains, his company is ‘very focused on building our sales and marketing organizations in the U.S., Europe and Asia so that we are prepared to ramp our sales efforts as pandemic-related restrictions are lifted,’” InvestorPlace’s Louis Navellier wrote on June 7.
My colleague pointed out that Nano Dimension was flush with $1.47 billion in cash as of the end of March. However, the company had an operating loss of $35.7 million in 2020 from $3.4 million in sales. That’s $10.50 in operating losses for every dollar in sales.
If this loss rate were sustained for the remainder of 2021 and 2022, it would have to generate $140 million in sales to fritter away all of its cash. That’s not going to happen.
For this reason, the speculative bet is looking good at current prices. It makes sense to put aside some cash should it fall below $6 as it did in May.
The Downside to Owning NNDM
If you look at the holdings of ARKQ, you will see that 3D Systems (NYSE:DDD) is the ETFs 10th-largest holding with a weighting of 2.86%, 103 basis points greater than Nano Dimension.
A portfolio manager’s top ideas are often those in the top 10. The manufacturer of 3D printers makes Wood’s top 10. So, it is another possible option. But, like NNDM, DDD is losing money. That said, 3D Systems had substantial revenues in 2020 –$557.24 million – making it a far more mature company than Nano Dimension.
3D Systems currently trades at 6.6x sales. By comparison, NNDM trades at 505x sales.
If it were me, I’d buy ARKQ to capture Nano Dimension’s potential while reducing the company-specific risk. Unfortunately, Nano Dimension still needs to prove it can generate meaningful sales. We won’t know the answer until well into 2022.
Wood’s fund owns 46 stocks in ARKQ. Many of them are large businesses with significant profits to protect against the money losers like NNDM.
I’m not sure you ought to be in a rush to buy its stock. If you must buy, for now, do not pay more than $7.
On the date of publication, Will Ashworth 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.
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.