There is a great rule with investing that says only invest in companies that you know and are confident about their business model. With a couple of thousand U.S public stocks, I admit I have never heard of Nano Dimension (NASDAQ:NNDM) before. And in simple terms, its business operations mean that is it is developing a 3D printing technology for the additive manufacturing of semiconductors. Sounds interesting, but is NNDM stock interesting too?
Source: Spyro the Dragon / Shutterstock.com
According to Yahoo Finance, Nano Dimension “provides additive electronics in Israel and internationally. Its flagship product is the proprietary DragonFly lights-out digital manufacturing (LDM) system, a precision system that produces professional multilayer circuit-boards, radio frequency antennas, sensors, conductive geometries, and molded connected devices for prototyping through custom additive manufacturing”
That said, the firm’s profile is clearly riveting and it has a very strong track record. However, what does the future hold for NNDM stock?
Let’s take a closer look.
The Market of Additively Manufactured Electronics (AME)
There is also another important information on what Nano Dimension does for business.
On the official website, we read that the company is “a provider of intelligent machines for the fabrication of Additively Manufactured Electronics (AME).”
Moreover, a report on Additive Manufacturing Market states that significant growth should be expected in the next 5-6 years. In fact, the “Global Additive Manufacturing Market is expected to reach USD 26.68 billion by 2027, growing at a high rate of 14.4%, according to a new report by Reports and Data. Increasing government support to enhance additive manufacturing technology across various regions is a key factor influencing market demand.”
Additionally, let’s consider the bright prospects for Nano Dimension moving forward. This includes “[h]igh fidelity active electronic and electromechanical subassemblies are integral enablers of autonomous intelligent drones, cars, satellites, smartphones, and in vivo medical devices.” That said, technology — especially for cars and smartphones — rapidly evolving as companies compete with each other for market share and dominance or technological innovations.
Overall, though, this is a catalyst for Nano Dimension and NNDM stock.
A Business Plan That Places Importance on Acquisitions
In 2021, Nano Dimension announced two acquisitions to pursue its business goals. The first one was to acquire NanoFabrica Ltd., paying the “shareholders of NanoFabrica a total ranging between $54.9 million to $59.4 million.” About 50% of this would be paid in cash, and the rest in American Depositary Shares (ADS) of Nano Dimension. The second acquisition was DeepCube, “an award-winning deep learning pioneer that provides the industry’s first software-based deep learning acceleration platform that drastically improves performance on existing hardware”.
With all of that in mind, these two acquisitions show a very dynamic company and active management that wants to create value for the shareholders. However, is NNDM stock heading in that direction now? I’m still not sure.
The Art of Raising Cash
Collectively, second-quarter 2021 financial results showed some mixed positive and negative information.
The good news is that total revenues for the six months ended June 30, 2021, were $1.62 million compared to $990,000 during the same period a year ago. This is all good news according to my analysis because research and development (R&D) expenses, S&M expenses and G&A expenses all rose year-over-year (YOY) as well. So if I had to guess what the result would be of these increases in operating expenses, then I would place high odds that based on lower operating income net income would be impacted negatively too.
That being said, the truth is that net loss for the six months ended June 30, 2021, was $22.92 million or $0.10 per share, compared to $10.34 million or $0.55 per share during the same time last year. This is common sense and logic, and by now you should probably know that when I come across a company that is losing money, I am not a big fan — based on its fundamentals and valuation.
But as Nano Dimension reported a huge increase in cash and cash equivalents during the period, I thought that this increase could be well a result of raising cash rather than making cash. Raising cash means issuing stock, making cash means having a profit from sales. In turn, Nano Dimension reported that this cash increase was due to “proceeds received from the sales of American Depositary Shares representing the Company’s ordinary shares in the first half of 2021, less cash used in operations during the six months ended June 30, 2021.”
NNDM Stock Is Too Pricey Based on Key Metrics
In 2016, Nano Dimension reported a negative free cash flow (FCF) of $7.05 million. And while that figure was significantly worse the next three years, the firm still reported negative FCF of $10.85M for 2020. Additionally, two other figures are notable, too. NNDM stock boasts a price-sales ratio (P/S) of 114.98 and an operating margin of -1,050.84%. Both these numbers suggest a very lofty valuation.
As a verdict, I see a dynamic company with interesting technology in a growing market; But that’s it. I see problems such as stock dilution, and a very pricey valuation, plus an unprofitable company. Therefore, I need to pass on NNDM stock right now. I need to see more positive developments and profitability, an increase in sales and positive free cash flows.
On the date of publication, Stavros Georgiadis, CFA 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.
Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.
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