After soaring in the pre-market upon the release of its earnings report, shares of BioNano Genomics (NASDAQ:BNGO)are down 3% in mid-day trading. Although there was a lot to like in the company’s report, investors may still be trying to rationalize if BNGO stock is priced too high.
Since Dec. 22, 2020, BNGO stock has soared 1,378%. But the question is why? The company last reported earnings in November and the stock didn’t move. Yet a month later it starts a massive rally. Institutional investors have begun to show more interest in the stock. Institutional ownership (as of this writing) is at about 5.3% which is significantly higher than the prior quarter.
And the company just received a target price upgrade from Oppenheimer to $15 per share. However, overall, analysts have a consensus price target that suggests BNGO stock will go down, not up in the short term.
Perhaps more troubling for retail investors is that volume is down significantly. That could change of course, but a larger question right now is should more investors take an interest in BNGO stock at its current price?
The Future of Genomics
There is no question that BioNano is doing important work. The company’s leadership in the field of genomic structure analysis is unquestioned. Structural analysis picks up where gene sequencing leaves off.
The basic idea is that information is power. In this case, structural analysis provides information that is not detectable by gene sequencing. This gives doctors a greater likelihood of rationalizing a patient’s symptoms. This in turn can lead to a more targeted approach to therapeutic treatments. In the future, structural analysis could lead to the widespread application of gene editing procedures.
How the Saphyr System is Different?
Structural analysis has been around for years, but BioNano has what amounts to a better mousetrap. Allow me to briefly explain. When it first became a thing, genomic structure analysis was a series of distinct processes. The problem with these separate processes are time and cost. To run each of these processes separately took time and had a hefty price tag. And it also required specialized expertise.
The Saphyr system takes an all-in-one approach that combines these processes into a single diagnostics system. The Saphyr system addresses the problems of time and cost. The system allows structural analysis to be performed much faster and they have driven down the cost to perform its gene analysis to around $450 per gene.
In the company’s earnings report, BioNano said it was able to increase its installed base of Saphyr systems from 24 at the end of 2019 to 97 at the end of last year. This indicates that its addressable market is seeing value in the system.
Growth Through Acquisition
BioNano posted $4 million in fourth quarter revenue, a 43% increase in year-over-year revenue. And a good bit of that revenue ($1.1 million) came from its acquisition of Lineagen. This company provides diagnostic services that are sought after by BioNano’s customer base. And, it’s a key step in ensuring that the cost of its services will be reimbursed by health insurance providers.
Too Far, Too Fast?
The central concern that I have is that the bullish case for BioNano existed well before last December. But back then, BNGO stock was literally a penny stock. And there simply doesn’t seem to be enough new news to justify the parabolic leap in BNGO stock.
But this is where we are. Retail investors are doing the heavy lifting here. And they believe that BioNano Genomics has a value that justifies the price, even if the payoff for that value may be years down the road.
BioNano operates in a sector that has the potential to be a disruptive force. However, for now I think the good news to the tune of nearly $1.5 billion in equity value is priced into BNGO stock.