Weak Fundamentals Prove There Is No Reason to Buy Bionano Genomics

Stocks to sell

Based on my financial analysis, I would not touch Bionano Genomics (NASDAQ:BNGO) right now. I would run fast and far away from BNGO stock. But why? There are several reasons, and they all have to do with fundamentals.

BNGO stock: a stylized image of a Doctor touching a medical clamp a DNA molecule

Source: Natali_ Mis/ShutterStock.com

While the company has a positive catalyst here and there, its revenue and subsequent valuation leave much to be desired. BNGO stock’s performance has also been volatile, and its recent dilution only worsens the outlook for Bionano’s financials.

BNGO Stock: Some Good News

The only good news about the company is that BNGO stock was added to the US small-cap Russell 2000® Index. According to Yahoo! Finance, the company announced it had joined the index in late June. Its membership is on an annual basis.

In the announcement, CEO of Bionano Genomics Erik Holmlin was optimistic about this development. He stated the following:

“Inclusion in the Russell indexes enhances the visibility of our company as we continue to grow the installed base of Saphyr and potentially build the next great genomics company … We believe this milestone is a reflection of the growing awareness of optical genome mapping (OGM), the significant progress our business is making towards OGM being part of routine use in genome analysis including cytogenomics and another step forward in expanding awareness of Bionano among institutional investors.”

Now, I agree that this is a very positive development. Institutional investors may become more interested in BNGO stock. But as always, you should be aware of what you are investing in. You should conduct a careful financial analysis of a stock’s valuation and fundamentals before you buy it.

In this sector, I’ve heard the “disrupt the industry” story more times than I can remember, and Bionano Genomics is part of this phenomenon. I wish the best of luck to the company and hope that it can accomplish its mission. However, BNGO stock is a pass for me.

It’s not that I am biased against the company by any means. Bionano Genomic’s positive catalysts just don’t outweigh its weak fundamentals.

Revenue and Valuation to Worry About

If you read my articles on InvestorPlace regularly, you probably know that I support my investment thesis with fundamentals and valuation. Looking at BNGO stock, I found several concerning figures.

First of all, the company’s market capitalization is $1.61 billion on sales of only $8.5 million in 2020. This was the second consecutive year with a decline in revenue, as the company reported revenue of $10.13 million in 2019. That was a decline of 15.6% from Bionano Genomic’s 2018 revenue.

Next, its net income has been negative since 2016. In 2020, Bionano Genomics saw a net loss of $41.08 million. EBIT after unusual expenses has also been negative since 2016. So based on this data, the company does not make any profit from its core operations.

Finally, its free cash flow has also been negative during the same 4-year period.

After reviewing these financials, I’m not sure why someone would buy BNGO stock. I do not see any indication that it has potential to be a value or growth stock.

BNGO Stock Reflects a Weak Valuation

In early 2021, the stock surged from less than $5 per share to a 52-week high of $15.69 in mid-February. The low price for its 52-week range is 47 cents. This is an amazing (and puzzling) increase considering the company has seen no profits for the past 5 years.

The company issued $328.64 million of common stock last quarter. The good news is that it has plenty of cash to use for its business. The bad news is that this will have a very negative and dilutive effect on BNGO stock.

Profitability is absent for now and revenue growth is weak. Combined with the negative free cash flow and recent stock dilution, BNGO stock is still not cheap despite the selloff since its 52-week high.

I believe when the stock surged in February, many investors realized it was time to take their profits and run. BGNO stock was always more of a speculative bet, and its finances aren’t conducive to value or growth investing.

On the date of publication, Stavros Georgiadis, CFA  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.

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn

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