Investors have increasingly gravitated toward 3D-printing stocks. Among the companies in this sector that has garnered significant attention is Nano Dimension (NNDM).
This year, NNDM stock skyrocketed to nearly $18 per share in the meme stock rally we saw take place in Q1. However, like many meme stocks, Nano Dimension has seen its valuation come back to earth. Currently, investors can pick up shares of this 3D printing stock for around $5 per share.
That said, NNDM stock currently remains well above where it traded last year. Those taking a truly long-term perspective of the markets may like where this company is positioned right now.
However, Nano Dimension’s valuation is where many investors stop in their tracks. The company generated $3.4 million of revenue last year. However, currently, Nano Dimension is valued at $1.3 billion. That’s a rather large valuation gap that will need to be filled by rapid growth in the years to come.
Currently, my outlook is natural on Nano Dimension. (See Analysts’ Top Stocks on TipRanks)
Reasons for Optimism
This Israel-based company produces and reinforces 3D-printed, electronic systems. It produces PCB circuit boards with the help of its DragonFly LDM system. This technology makes NNDM the only company to feature a complete additive manufacturing platform.
What’s intriguing to investors about the company’s core business is the ultimate size of the potential opportunity available to Nano Dimension. Various estimates have pegged the industry size at $58 billion. Some believe this sector could become as large as $70 billion by 2024.
Large-cap company Jabil (JBL) is the largest manufacturer of circuit boards right now. The company’s clientele includes the likes of leading companies such as Apple (AAPL) and Amazon (AMZN). The ability of Nano Dimension to replicate Jabil’s manufacturing process via a 3D-printing unit presents an intriguing argument that Nano Dimension could be out to eat the lunch of some pretty established players.
Whether such a scenario is likely or not really depends upon one’s view of Nano Dimension’s underlying technology.
Right now, Nano Dimension is still working on perfecting its underlying technology. There’s more work to be done to bring the company’s core products to market and commercialize its conceptual designs. However, the company does have around $1.4 billion in cash and cash equivalents on its balance sheet.
This cash also provides a rationale for where NNDM stock trades presently, which doesn’t at all make sense from a revenue perspective.
The pace of revenue growth, as well as the pace at which Nano Dimension burns through this cash, will be key determining factors for how this stock performs. Accordingly, bulls and bears tend to differ on their outlook for Nano Dimension from a competitive perspective in this hyper-growth segment.
Valuation
Nano Dimension is a company with a leading prospective technology, and a small market cap. Given the immense potential growth Nano Dimension provides, speculative investors have a reason to jump aboard this stock.
Those taking the view that this company can grow into its valuation focus on the growth rate of this sector. Expectations are that this industry could grow at a compounded rate of around 26% annually. That’s impressive, and does provide a bullish outlook for those on the higher end of the risk tolerance spectrum.
However, from a valuation standpoint, it’s hard to make the numbers jive right now. Yes, the company does have a substantial cash position which does need to be factored in by investors. However, this company’s current quarterly revenue of around $5 million just isn’t going to cut it much longer for those seeking meaningful quarter-over-quarter growth metrics.
Until this company provides a substantive fundamental reason to buy in, many investors will remain on the sidelines. Additionally, given the risk-off sentiment we’ve seen seep into the market, this view may be exacerbated for some time.
Bottom Line
Nano Dimension holds a sizable amount of capital. Moreover, the company’s prospects certainly tout a big opportunity for growth investors.
However, the company’s valuation is likely to continue to be a thorn in the side of investors. There’s a difficult fundamental argument to be made for this stock.
For now, it appears this is a stock that’s likely to remain volatile from here.
Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article.
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