After getting a slight boost during June’s second meme stock wave, it’s been a continued move lower for Nano Dimension (NASDAQ:NNDM) stock. The 3D printing company once received heavy attention from the Reddit set, mostly due to its status as a short squeeze stock.
That’s no longer in play. Instead, meme traders are trickling out. The company itself remains far away from hitting meaningful amounts of revenues or profitability.
NNDM stock seems set to fall down to the value of the company’s cash position ($5.15 per share). Trading for about $6.40, at first glance downside risk may appear limited.
Yet this minimal downside could be matched by limited upside potential, at least in the short to medium term. With the company prioritizing product development over sales growth, the continued move lower of its stock price may make sense.
Worse yet, there’s also the risk that cash burn accelerates going forward. Instead of minimal downside, it could instead be large, as the company exhausts more of its $1.4 billion war chest.
So, as it’s tough to tell how much upside potential or downside risk it has, what’s the best move? Wait for the company to give further indication it plans to become a profitable business sooner rather than later.
NNDM Stock: Downside Debatable
When I last wrote about Nano Dimension back in July, I made the case why the company’s large cash position minimized its downside potential. It may generate little to no revenue today. But given that its cash position makes up such a large portion of its market capitalization, at worst the company’s shares will fall to a price near that level of $5.15 per share.
It’s true that as a company still in its early stages revenue-wise, cash burn is something to look out for with NNDM stock. For now, cash burn appears manageable. Per its income statement for the second quarter 2021 (ending June 30), it had operating losses of around $20 million.
Adding in around $6.1 million in net interest income it yielded off its cash position, and net losses came in at around $13.6 million. Annualized, that’s around $54.4 million. That’s less than 4% of its total liquid assets today. But that’s likely not going to remain the case. That’s why investors are bidding down Nano Dimension. They anticipate it burning through this war chest at a more rapid clip going forward.
This wouldn’t be an issue, if the company was set to see its modest annual revenues skyrocket in the coming years. Say, from the $4 million it stands at today (based on trailing 12-month results), to hundreds of millions of dollars within by the mid-2020s. But based on remarks made by CEO Yoav Stern? Don’t count on it.
The Timeline May Not Match Your Investing Time Horizon
As InvestorPlace’s Joseph Nograles discussed Aug. 27, accompanying the company’s Q2 results were remarks from Stern that let investors know that revenue growth was not the main focus just yet. Focused now instead on investing heavily into research and development to further enhance its DragonFly electronics printing platform, it’s going to be a long time until the company starts generating material amounts of revenue. The timeline for profitability could be even longer.
In short, Nano Dimension’s revenue growth timeline may not match your investing time horizon. If you think of this stock as something akin to the many SPACs (special purpose acquisition companies) that possibly could see their sales go from zero to 60 within a few years, think otherwise.
Unless the company does more with its $1.4 billion cash pile than burn through it via costly R&D investments. It could also scale itself up via merger and acquisitions. In fact, it’s already done this, via its deals to buy DeepCube and NanoFabrica earlier this year. If it can use some of it to acquire some more operating businesses? At the very least it would give NNDM stock a material amount of revenue, and possibly positive earnings.
The faster it can turn its cash into a profitable business, the better. If it instead decides to spend even more money each quarter on R&D, with little concern about revenue growth, it will be hard for NNDM stock to hold steady, much less rally, from here.
The Verdict: Hold Off Buying for Now
With the uncertainty around its future R&D spending plans, downside risk is debatable when it comes to Nano Dimension. So is upside, given the company is more focused on the long haul at the expense of growing its sales.
Until we hear more from the company, such as news of another M&A deal, it’s best to hold off on NNDM stock.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.