- We believe that the upside in Nano Dimension is limited at this stage.
- It’s safe to assume that by trading at a price-to-sales ratio of over 70x, the company’s future growth is more than priced in at this stage.
- The possible stock offerings in the future are making Nano Dimension's stock less attractive in comparison to other stocks on the market.
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This article was amended on 4/2/2021 to reflect adjustments to the phrasing around dilution.
We believe that the upside in Nano Dimension (NASDAQ:NNDM) is limited at this stage. Our major concern with the company is that by trading at a price-to-sales ratio of over 70x, its future growth is more than priced in at this stage. On top of that, due to the capital-intensive nature of its business, Nano Dimension is likely going to continue to lose money each quarter and won't become profitable anytime soon. In addition, the possible stock offerings in the future are making the company's stock less attractive in comparison to other stocks on the market. For those reasons, we believe that it's better to avoid Nano Dimension stock at the current levels.
More Losses On the Way
Nano Dimension is an Israeli-based company that develops and sells 3D printing solutions mostly to defense agencies and big organizations. It's the first company in the world to develop an in-house 3D printer that's able to print multilayer PCBs (printed circuit boards). At the moment, Nano Dimension's flagship AI-powered printer is called DragonFly, it was developed in 2019, and it has a price tag of ~$250,000 to ~$350,000. The biggest advantage of DragonFly is that it's able to replace traditional PCB manufacturers and prevent the theft of intellectual property since there's no longer a need to send the data about PCBs in digital formats to factories in China.
In addition to selling printers, Nano Dimension is also able to make money by providing fabrication services, which include designing, prototyping, and production of chips for third parties. On top of that, Nano Dimension also sells proprietary conductive inks, which create an additional income stream for the business, since DragonFly customers can only use Nano Dimension inks in order to use the printer.
While Nano Dimension has a promising technology, its biggest downside is that it's still in its early stages of development, and as a result, it has been suffering significant losses in recent years due to the capital-intensive nature of its business. While its Q4 revenues of $1.97 million were flat Y/Y, its R&D expenses during the period increased to $3.72 million from $1.53 million a year ago, while its net loss in Q4 was $17.44 million. In addition, its revenues in FY20 declined Y/Y to $3.4 million, while its losses for the year were $48.5 million. Considering this, it's safe to assume that while the company doesn't hold any long-term debt, it should be considered a risky investment as it will continue to lose money in the foreseeable future.
Another downside of Nano Dimension is that the company is richly valued. Currently, the value of the printed electronics market is forecasted increase to from $592 million in 2021 to $2.4 billion in 2025. Considering that Nano Dimension trades at a market cap of ~$2.1 billion, it's safe to assume that all the near-term growth is already priced in into its stock, so its upside is limited. In addition, while DragonFly can replace traditional manufacturers of PCBs, its high price tag makes it easier for companies to continue to use cheaper and more viable solutions to create printed circuit boards. For that reason, there's a high chance that DragonFly will remain a niche product in the foreseeable future.
On top of all of this, the biggest downside of Nano Dimension is that it has already executed dozens of stock offerings in recent months, which diluted its shareholders and increased its share count by over 3000%. Considering that Nano Dimension has a net margin of -1426%, it doesn't generate a positive FCF, and it hasn't leveraged its balance sheet to this day, it's safe to assume that another stock offering could be executed later this year since it's very unlikely that the business will become profitable anytime soon. What's even worse is that in the last five years Nano Dimension's stock has dramatically underperformed against S&P 500 and we don't see how it'll be able to improve its performance anytime soon. With a price-to-sales ratio of over 70x, Nano Dimension is already significantly overvalued and we find it hard to justify a long position in it at this stage.
Chart: Seeking Alpha
Considering all of this, we believe that it's better to avoid Nano Dimension, as several risks make its upside limited at the current price. The company is already richly priced, there's a high chance that it'll continue to lose money due to the capital-intensive nature of its business, and the possible dilutions in the future are making its stock less attractive in comparison to other stocks on the market. In addition, the rise of treasury yields will lead to the rebalancing of institutional portfolios from growth stocks to value stocks, so there's a high risk that Nano Dimension will continue to depreciate in the near term. For those reasons, we have no position in the company.
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Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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