Getting in on the ground level with a stock that's on track to grow massively is one of the better things you can do for your portfolio's health. No doubt, early-stage businesses are riskier and you could lose 100% of your money, but there's also the possibility of huge upside if the company succeeds.
In that vein, Bionano Genomics (BNGO -2.78%) might be a stock you should consider now. Though its business model is unproven and its stock is down more than 36% in the last 12 months, there's reason to believe it might have a bright future. Here's why.
Why you should consider buying shares
The biggest reason to invest in Bionano Genomics today is that it's bringing in revenue like crazy, and its growth story is just getting started. The company develops and sells a piece of highly specialized genomic mapping hardware dubbed the Saphyr that biomedical researchers use to investigate chromosomal abnormalities called structural variations. Those abnormalities are implicated in many severe maladies, including multiple myeloma, Down's syndrome, and some lung cancers.
What's more, measuring those structural variations isn't exactly easy. For example, even next-generation sequencing (NGS) hardware made by companies like Illumina that are on the cutting edge of genomic analysis can't detect genomic inversions, and the ability of NGS to characterize translocations of genetic code from one area of a chromosome to another is highly limited. In plain English, that means Bionano's Saphyr can do things that other advanced products made by competitors can't.
So Bionano is making headway in its niche market, where it's essentially alone. That's how it was able to grow its base of installed Saphyrs by 46% in 2022 compared to the prior year, reaching a total of 240 systems, according to the company's preliminary fourth-quarter earnings announcement. Those sales are why management claims that its revenue could have risen by as much as 56% in 2022, topping $28 million.
But there's reason to believe that the company will grow even more. Wall Street analysts see its top line jumping higher to reach $44.6 million in 2023 thanks to the installation of more Saphyrs in laboratories and the benefits of rising recurring sales of software, services, and consumable reagents for its systems.
Compared to the volume of consumables sold in Q4 of 2021, management reports that sales were up by 49% year over year. And as more researchers get the devices installed and understand when and how to use them, it's hard to see how recurring revenue could do anything other than climb.
Why some investors will prefer to wait
Despite its many merits, Bionano Genomics is a risky stock that isn't a good fit today for those who have a low tolerance for risk, though it could be a better fit in a few years.
Its long-term growth strategy is for genetic testing performed with the Sapyhr to be recommended by prevailing medical guidelines. If it succeeds -- and a slew of ongoing clinical trials by academic medical centers using its hardware suggests that it has a solid chance -- it'll essentially have locked in a gargantuan and highly recurring market.
But if it fails, it'll need to find another way to access the clinical market, which could relegate the Saphyr to being a research and development (R&D) tool with a small niche rather than a workhorse clinical asset doing a highly differentiated genetic testing task. And for many investors, that's too big of a looming fork in the road to feel good about investing in the stock right now.
Also, Bionano isn't profitable yet, and it's unclear when it will be, if ever. That means it's racing to grow before it runs out of money, and it might need to issue new stock to raise capital, diluting its shareholders in the process. Once again, if you're not comfortable with that risk, this isn't the stock for you at the moment, even if the company can reach profitability and be less risky in the near future.
On the other hand, for people who can tolerate a moderate amount of risk or more, Bionano is a great stock to buy today and hold for five or more years. While much remains to be confirmed about the appeal and utility of its product to the biomedical community, its combination of highly probable rapid near-term growth, strong recurring revenue potential, and uniquely capable hardware are likely to lead to a rising stock price.
There's little indication of its revenue growth rate slowing down in 2023, and a lot could happen between now and the end of the year which might even cause its sales to accelerate. Still, keep in mind that growth stocks like Bionano are liable to suffer disproportionately from bear markets, so don't be too surprised if an investment today declines a bit until the market turns, even if the business doesn't report any bad news.
