While it's true that the risks of an investment in an earlier-stage business are higher, there's sometimes a sweet spot where the largest portion of the risk burden is decreasing, but the market hasn't bid up the stock's price accordingly yet.
Bionano Genomics (BNGO -3.51%) appears to be in just that place -- at the start of its growth journey -- and it could be a great way to give your portfolio some additional upside potential. Here's why you should consider buying the stock now.
Bionano's claim to fame is its laboratory analyzer device for optical genome mapping, which it calls the Saphyr. The point of the machine is that it can identify and characterize structural variations in genomes; those structural variations are highly relevant for human health, and aberrant variants are responsible for causing conditions like Down's syndrome as well as some cancers.
The traditional methods for detecting structural variations are quite complex, and require a ton of time spent in tedium at the lab bench, so there's considerable value in having a piece of hardware that can do it with automation. Plus, competitors don't have any products that are capable of exactly the same resolution of analysis, putting Bionano at the lead of the pack.
Multiple tailwinds are set to boost growth
So far, the company is finding success in penetrating its market, with its quarterly revenue rising by 30% year over year to $8.2 million, per its Q4 earnings report. It isn't profitable yet, but Bionano has a few powerful forces in its corner that should carry the company to growth, starting with the fact that the Saphyr can simplify genome mapping workflows and provide researchers and clinicians with data that they would probably not have access to otherwise.
Another tailwind is the company's base of recurring revenue, which stems from the fact that the Saphyr requires consumable micro-fluidic cassettes for each set of samples that customers want to run. These cassettes (also called flow cells) essentially prepare samples for the analyzer by mixing them with certain chemicals that the analyzer can then detect. Furthermore, Bionano is continuing to develop cassettes with more advanced features, which should contribute to its long-term growth runway.
Each biopharma laboratory with one of Bionano's systems spent around $73,000 on consumables in 2022, and that total is expected to rise over time. Bionano also sold 23% more of its cassettes than the prior year, reaching a total of 15,375. As people use the Saphyr more and more, they'll need to buy more cassettes to replace the ones they use, and in due time they might need to make regular purchases of more than one type of consumable. And that should help the business to grow sources of stable recurring revenue.
The final factor that'll likely buoy this stock is that researchers tend to communicate with other researchers about the techniques they're using and why. One avenue for this discourse is scientific literature, wherein people publish articles describing their methods and findings, especially when they are notably different from what's already out there.
As more customers have access to the Saphyr and they produce more literature using its capabilities, it'll be free publicity that builds the brand, attracting more purchases as well as solidifying the scientific validity of using the device for optical genome mapping. And there are already dozens and dozens of published studies with the machine, so this trend is well on its way.
Competition remains a risk
As promising as the Saphyr is, Bionano has powerful competitors like Illumina, whose genome analyzer devices are widely accepted as the biopharma industry's standard for most applications, though they can't do exactly the same types of analysis as the Saphyr. Expect Illumina to start to try to encroach on Bionano's turf, especially if the company continues to gain traction in its market.
Then there's the risk of the bear market continuing to drive down Bionano's stock price. Its shares over 30% in the past year thanks to the market's newfound distaste for unprofitable growth stocks. Until it reaches profitability or the prevailing market sentiment changes, its stock has a fair chance of continued volatility from factors that are largely beyond its control.
And, of course, even if the bear market ends tomorrow, Bionano still needs to prove that its business model will be profitable and that it can establish itself as a powerhouse in gene sequencing. But with its $113.2 million in cash, Bionano should be able to keep the lights on and fund further penetration of its market.
And that's just one more reason the stock is ripe for purchase today, so long as you don't bet the whole farm on its near-term success.
