We’ve talked before about how themes that are easy to understand attract investors very quickly. Many of these are borderline scams. One of our readers recently asked us what happened to Scuderi, a company we warned about, that was “reinventing the motor.” Last we checked, they were involved in multiple lawsuits with prior investors accusing them of fraud. Countless examples exist on the over-the-counter (OTC) market where an easy to communicate value proposition helps a story spread rapidly while attracting more investors and driving the share price to the moon – the classic pump and dump.
Another example of a great story that’s gone nowhere is graphene. Anyone remember graphene 3D printing? They’re still waiting for revenues. Organovo and 3D printing is another example. Printing organs was supposed to be the way forward. Who amongst us wouldn’t appreciate having a spare liver lying around just in case those late Monday morning screwdrivers ever turn into a problem? Unfortunately, Organovo flailed, while a little-known Swedish bioprinting company silently continues to capture more and more market share. Today, we’re going to talk about another easy-to-understand value proposition – 3D printing electronics.
The Promise of 3D Printing Electronics
The basic idea behind 3D printing electronics is that you have a 3D printer that can embed everything you create with electronics. It’s what it says on the tin. Lots of examples were being given in the early days of use cases for such a technology, though it remains to be seen if such a printer is economically viable. At least one company thinks it is – Nano Dimension (NNDM).
Nano Dimension Stock
Shares of Israeli firm Nano Dimension first began trading in 2016 in the United States via a reverse merger, something with similar mechanics to the not-so-humble SPAC. Reverse mergers in themselves are often red flags, and when we last checked in with Nano Dimension in 2018, the co-Chairman of its Board of Directors was one of three people arrested on suspicions of money laundering, aggravated fraud, and securities offenses. Usually, we’ll stop reading right there and never take another look again, but everyone deserves a second chance. That individual’s name no longer graces Nano Dimension collateral. Nor does the name Avi Reichental, the ex-CEO of 3D Systems who couldn’t manage to live up to 3D printing’s lofty promises, despite bringing in will.i.am as Creative Director.
Today, we want to take a clean look at Nano Dimension, especially considering that revenues are finally arriving. At least, they were. The green bars on the below charts show annual revenues (left chart) and quarterly revenues (right chart).
Credit: Yahoo Finance
“In 2019, we sold 27 systems, and in 2018, we sold 30 systems,” says a company filing document which blames COVID – understandably – for the downturn in product sales through the first three quarters of 2020.
The Latest Filing
“We have sold 60 machines already, mostly to leading blue chip defense, academic and commercial organizations worldwide,” says the Q3-2020 update, implying that they had sold 2 machines three-quarters of the way through 2020. What they focus on instead are “upgrades” where they’re essentially upgrading the old machine to their newly developed machine allowing them to tell a good story about customer adoption.
That same filing notes cash-on-hand of $45.7 million. Today, that number has ballooned to over $1 billion after the company has been selling massive blocks of shares. What you end up with is a portfolio that’s heavily weighted with cash and some Nano Dimension equity which has been massively diluted over time as the company has been issuing shares to stay alive.
Credit: Nano Dimension 20-F
Acquiring a company and then making a big deal out of it drives the Robinhood weekday warrior lot crazy, and one even might be able to achieve SPAC-like returns if they make enough noise. The sort of hype you’re seeing today in tech – even recently in 3D printing – is the bane of any rational investor who sees volatility as risk and wants to avoid as much risk as possible.
Once an acquisition is made and all the numbers consolidated, it remains to be seen if revenue growth can happen post-pandemic for Nano Dimension. Now, the management team gets to decide how to spend this mountain of cash. You can’t blame them for making hay while the sun shines, but there’s another concern we have around their existing platform.
Product Market Fit
Just because Nano Dimension sold 60 machines to customers doesn’t mean that this unique technology is economically viable for the use cases they’ve identified. If the machines they’ve sold don’t prove their value, it’s highly unlikely they’ll be able to sell more. If that happens, they’ll need to figure out another product-market-fit strategy or pivot, neither of which is an easy thing to do.
Whenever crisis strikes, companies are quick to tighten the purse strings. Usually, this involves shelving any nice-to-have projects and focusing on core competencies. Given that Nano Dimension only recently sold their machines to customers across various industries, it’s likely new customers will want to wait a while and see how those adoptions go before buying more printers. In the meantime, the company has plans to begin offering a prototyping/fabrication services business.
Credit: Nano Dimension
Planning and 10 shekels will barely get you a cup of coffee these days. Not selling or marketing your product until “COVID is over” doesn’t sound like the way forward. Maybe they can bolt on some revenue growth with their plan to acquire a company that compliments their prototyping services business which they’re planning on building.
To Buy or Not to Buy
Simply based on what we learned in our original look at Nano Dimension, this would always be a stock that we avoid. Today, it’s much the same conclusion. Their “Fail-safe-BioTech Investment Model” makes little sense, they can’t seem to properly articulate their business, and their revenue growth has stalled with no end in sight. There’s no reason to take another look here until annual revenues resume their growth trajectory. If Q4-2020 is like the previous three quarters, then we’d expect to see 2020 revenues come in around $1.9 million (Q4-2020 estimated based on average of prior three quarters). Here’s a look at Nano Dimension’s historical revenues along with our forward-looking estimates for 2020.
- 2016 – $46,000
- 2017 – $829,000
- 2018 – $5,100,000
- 2019 – $7,070,000
- 2020 – $1,904,000 (Estimate)
In total, this $2.5 billion company has only ever managed to produce around $15 million in revenues. We don’t invest in companies that are pre-revenue, and we also don’t invest in companies that can’t achieve the double-digit revenue growth we expect from disruptive technology stocks.
As they teach you in bee school, the ultimate goal for every company is to survive. Nano Dimension might be surviving for a very long time now that they have over $1 billion in cash to fund the company going forward. In the meantime, they can continue to enjoy “the ARK effect” which sees their shares soar every time ARK’s funds grow. We’re avoiding this stock going forward, though we may take another look if revenues start taking off.
For those who are long and strong NNDM, just remember that ARK is an active portfolio manager. That means they can buy or sell shares of Nano Dimension at any time. Should they decide to exit their position in full or part, expect the share price to react accordingly as the ARK effect happens in reverse. Even if ARK has hands of steel, why is this $2.5 billion company with miniscule revenues up +520% over the past year compared to a Nasdaq return of +42%? Is the promise of 3D printing electronics really that great? Probably not. Today’s investor seems more likely to choose science by press release as opposed to focusing on what matters – like revenue growth.
Less breakthroughs, more revenues please… Credit: MarketWatch
People from the streets develop an uncanny knack for sensing threat and opportunity. Today’s investor sees only opportunity, rarely looking for the threat. Street smart investors smell a rat here. A company that’s barely been able to grow revenues continues to dilute its existing shareholder base massively while shares soar to the moon because of the Ark Effect. When there’s little substance, lots of future promises, and red flags that are hard to ignore, it’s a stock that is best passed up by novice and experienced investors alike.
Pure-play disruptive tech stocks are not only hard to find, but investing in them is risky business. That’s why we created “The Nanalyze Disruptive Tech Portfolio Report,” which lists 20 disruptive tech stocks we love so much we’ve invested in them ourselves. Find out which tech stocks we love, like, and avoid in this special report, now available for all Nanalyze Premium annual subscribers.
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