On Dec. 22, Bionano Genomics (NASDAQ:BNGO) stock closed at 55 cents. Less than three months later, it’s at $9. The obvious question is: what’s changed?
As far as the equity market goes, quite a bit. In the month leading up to that Dec. 22 close, BNGO stock saw average daily volume of about 6.8 million shares. Roughly speaking, that represented $4 million in dollar volume.
Over the last month, the average number of shares traded per day has been more than four times as high.
As far as the business goes, however, not that much has changed. In its own way, the volume figures highlight that fact. Certainly, good news increases volume — but not usually this far, this fast.
That’s not to say that there’s been no good news. There just hasn’t been enough to justify a nearly 3,400% rally off the lows. Traders are having a ball with BNGO right now, but investors should steer clear.
The Case for BNGO Stock
Bionano’s core product is the Saphyr system. Saphyr is used to search for so-called “structural variations” in genomes, as well as in cytogenetics, which studies changes in chromosomes. The system includes an instrument for analysis as well as chips and reagents to run individual tests, with the latter categories providing recurring revenue.
It’s important work. And Bionano claims that Saphyr has an edge over existing methods. Saphyr can analyze longer fragments — they average 250,000 base pairs — against just hundreds of base pairs for some existing offerings. It’s cheaper and less labor-intensive as well.
The analyses performed by Saphyr systems have two core applications. First, they can be used in diagnosis of genetic disorders. Structural variations in particular aren’t easily discovered by existing methods, which can leave some conditions undiagnosed even as a patient presents symptoms.
Second, they can be used in research of genetic disorders. The lower cost and reduced labor required in theory provide particular advantages on this front.
All told, there is a case for BNGO stock. This isn’t a scam. This isn’t a pump and dump. But that alone doesn’t make the stock a buy.
Where Are the Results?
More importantly, all these advantages existed in December, when Bionano had a market capitalization of about $85 million. Owing to both the higher price and a pair of equity offerings this year, the figure now is $2.5 billion.
And, at least so far, Bionano hasn’t delivered on the potential it claims to have. Revenue in the first nine months of 2020 (Q4 results will be released Tuesday) declined 38% year-over-year to just $4.5 million.
The novel coronavirus pandemic certainly was a factor; some laboratories were simply shut down last year. But the longer-term trend isn’t much better. In 2019, revenue dropped 15% to $10.1 million. Operating loss that year was $26 million.
To some extent, this is an early stage company — but it’s not exactly a startup. Bionano Genomics was founded in 2003. If the product really is such a substantial improvement over existing methods, it would seem that 16 years’ worth of work would result in sales well past $10 million, if not some level of profitability.
The combination of the massive rally and the soft results gets us back to the original question: what’s changed?
Again, the answer mostly seems to be that BNGO stock has caught the eye of investors, or at least traders. The first catalyst of the rally seems to be a study, released in December, that showed Saphyr was more effective at detecting structural variants than a competing technology.
But a single study doesn’t necessarily change the case. It doesn’t mean Saphyr suddenly will become the industry standard, or that competitors won’t respond.
And it doesn’t mean that Bionano is set for exponential growth.
Indeed, one analyst who had been bullish on BNGO stock reiterated his call after the study. He assigned a price target of $2. The target was only hiked substantially after the stock took off, which seems more like an all-too-common example of Wall Street following rather than leading.
At the very least, there’s a lot of risk here. Bionano’s technology has potential. As a company, Bionano hasn’t delivered on that potential yet. The cash raised this year will help, but it alone doesn’t justify the addition of some $1.5 billion in equity value.
That’s the core problem with BNGO stock: the rally simply seems to have gone too far. The stock price suggests that the story is over, and Bionano has already won. In fact, the story is just beginning — and Bionano has an awful lot of work left to do. Investors should wait for signs of real progress before assuming success is just around the corner.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.
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