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Why Bionano Genomics Stock Could Exceed Analyst Targets

Fast-growing Bionano Genomics (BNGO) is one under-covered healthcare technology growth stock that exhibits significant upside potential right now.

The company is bringing to market a new and groundbreaking genomics research technology, and adding new capabilities to the field that have not been present before.

I am bullish on its long-term return potential. However, given a high short-interest (about 16% of its outstanding float has been sold short), it’s necessary to explain that position further. (See Insiders’ Hot Stocks on TipRanks)

Low Analyst Coverage, Wide Room for Mispricing

On one hand, generally, well-established companies with extensive analyst coverage have their fundamentals deeply researched by well-resourced professionals.

In turn, valuations usually stay within narrow ranges of average analyst price targets. Pricing efficiency is higher.

On the other hand, or let’s say the other end of the spectrum, there’s a group of (usually small) companies with little to no analyst coverage. Valuation efficiency is thus lower there, and chances for mispricing are much higher, and significantly so.

Bionano Genomics stock has little analyst coverage. The TipRanks tracker reveals only three professional analysts follow the stock closely. They are all very bullish on the company’s future. Short sellers seem to disagree.

Bionano Genomics is Breaking New Ground

Bionano Genomics is a life sciences instrumentation company in the genome analysis space. The company has developed a new and ground-breaking gene analytics technology never seen in the world before.

BNGO has developed a genome analysis platform called Saphyr that can detect structural variations, bringing to market a new capability in biological research and clinical diagnostics that had never been commercialized before. The technology is complementary to existing genome sequencing tech from established providers like Illumina (ILMN).

Specifically, Bionano’s Saphyr equipment can analyze structural variations in genomes, whereas existing traditional genome analysis technology could only analyze sequences while remaining blind to structural changes.

In a 2019 interview, the company’s CEO — Dr. Erik Holmlin — claimed that genome sequencers (like Illumina’s offerings) are essentially blind to structural variations (the changes in locations of the sequence on a particular chromosome).

Holmlin explained that structural variations are important in cancer research, as about 90% of blood cancers are caused by a structural variation, yet sequencers cannot detect those.

Market Adoption Key

The big picture for BNGO stock focuses on how the market will accept the Saphyr genome analytics technology and adopt it as complementary to existing offerings.

Although Saphyr can see genome structure, it can’t see point mutations. Illumina’s sequencers and similar existing platforms from competing vendors can detect point mutations, but they are said to be blind to structural variations.

The market could adopt Saphyr as a complement to existing “legacy” genomics research platforms. Should this happen, Bionano’s sales could explode over the next few years.

Outlook

Back in Fiscal Year 2005, Illumina reported annual revenue of $50.5 million. After strong organic growth and a few acquisitions, ILMN’s current trailing 12 month (TTM) revenue run rate stands at $4 billion. The market expects a 14.3% sales growth for 2022 and a 20% net income margin (on a normalized basis).

Meanwhile, Bionano is running at a $13 million TTM revenue run rate. A strong 226% year-over-year revenue growth was reported for the second quarter of 2021. Analysts protect a 71.6% year-over-year revenue growth rate for 2022. The company could exceed that given current massive adoption rates.

As a typical growth-stage business, the company is losing money. It may make some more losses as it ramps up its customer acquisition drive to increase the global reach for its promising technology.

Another genomic sequencing tech vendor, Pacific Biosciences (PACB), saw revenue grow from $34 million in 2011 to over $106 million over the last 12 months. PACB has a $5.4-billion market capitalization today.

There’s a big and growing market for genomics and genetics research equipment. BNGO is offering a complementary platform that does not necessarily compete with existing technology, but complements it.

Investors wouldn’t reasonably expect the business to grow to ILMN’s level in a decade. However, they won’t be surprised if sales reach a quarter of the larger player’s $4 billion, or hover above half of that mark ($500 million per annum) 10 years from now.

If the above happens, a $5-billion to $10-billion market valuation is possible by 2030.  

The company has a market capitalization of $1.5 billion right now.

Analysts’ Take

The three analysts covering Bionano Genomics are bullish on the stock, with a Strong Buy rating. At $12 per share, the average Bionano Genomics price target implies 123.3% upside potential over the next 12 months.

Bottom Line

Given a stretched valuation multiple of 48.3 times forward revenues, Bionano Genomics stock seems like a highly speculative investment right now. Short-sellers have amassed significant positions as they bet against its prospects.

Faster adoption rates of Saphyr in 2022 could trigger a strong share price rally and unlock tremendous value for investors. Add to that a potential short squeeze, and the picture becomes more interesting. The stock price can double from today’s levels.

However, if revenue growth fails to take off next year, BNGO stock could fall first before it can rise again.

Disclosure: At the time of publication, Brian Paradza did not have a position in any of the securities mentioned in this article.

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