It’s been quite the year for the life sciences company, Bionano Genomics (NASDAQ:BNGO). BNGO stock was trading for as little as 50 cents late last year before the short squeeze lifted the stock past it past the penny stock territory and then some.
Reddit traders believe that its novel gene diagnostic technology called Saphyr has an incredible growth runway ahead. However, with its float at roughly 10%, the question is whether BNGO stock can establish its presence in the life sciences sector.
Bionano Genomics game changer is Saphyr. The product is unique as it relies on gene sequencing and can map an entire genome to enable more effective detection of specific disorders. Moreover, it also allows for more effective integrated testing and accepts various samples, including tissue biopsies, cultured cells, and others.
With over 2,500 cytogenetic labs, the company believes it has a massive addressable market of over $3 billion. However, several risks can currently outweigh the upside of investing in BNGO stock at this time.
The Bull Case
Naturally, the bull case for BNGO stock is linked to the success of the Saphyr device. Bionano received a huge boost last year. It posted the results of a study that highlighted how Saphyr outperformed a device developed by its rival Pacific Biosciences (NASDAQ:PACB). The genomics sector will ramp up to $62.9 billion by 2028, growing at a compound annual growth rate of 15.3% from 2021 to 2028.
The company is finally showing signs of promise. Its first-quarter results saw its revenues rise by 179% on a year-over-year basis to $3.2 million, which comfortably surpassed estimates of $2.9 million. It also posted a net loss of $9.9 million, which showed a solid improvement over the $10.5 million net loss is generated in the same period last year.
Bionano analyzed more samples in the first quarter than ever before and shipped 11 Saphyr systems in the period. It hopes to take its installed base up to 150 systems by the conclusion of 2021. In that case, BNGO stock could keep its momentum if it makes significant strides towards its goals.
The Bear Case
There are several risks that Bionano currently faces, which are chomping away at its upside. The first is the stiff competition in the sector. In an industry where there is so much potential for growth, competition is imperative. Bionano has done well to convince investors that it’s carved a niche in one of the subsectors of the market. However, with several crossovers in the sectors, that notion is mostly inaccurate.
Moreover, with the high competition, companies must focus on product security and differentiation. For example, though Bionano has registered several patents concerning Saphyr, it has outsourced some key manufacturing components. This raises questions about whether competitors can produce similar types of products down the road.
Furthermore, it must continue to have enough cash to meet its expenditures on research and development. However, Bionano’s cash flows from operating activities were negative last year and were offset by common stock sales and exercise of stock warrants. Hence, the company needs to look at ways to maintain its cash balance that doesn’t involve shareholder dilution.
Concluding Thoughts On BNGO Stock
Six-month returns for Bionano stock are at a dumbfounding 1,150% due to the Reddit-induced short squeeze. However, the stock is now back to earth, and we can finally get down to the brass tacks.
Its Saphyr system has a robust growth runway ahead, but the risks surrounding its bull case are sizeable at this time. Therefore, it’s tough to invest in the stock unless it makes meaningful progress in the expansion of Saphyr.
On the date of publication, Muslim Farooque 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