Chasing Potential Big Moves in Nano Dimension Stock Is Sure to Get You Burned

Nano Dimension (NASDAQ:NNDM) stock represents a company in the burgeoning tech hub of Israel. The company operates in a niche of the 3D printing sector.

NNDM stock has risen over the last half a year, yet operational results indicate a fundamentally troubled company. Nano has raised a lot of money, and now is looking outward for growth. 

Nano Dimension makes intelligent machines that produce additively manufactured electronics, that is, they print one layer on top of the other, rather than (for example) using a mold or piecing products together from other manufactured parts.

NNDM stock rose above $25 in mid-2018, but then dropped and remained around $2-3 throughout 2020. It’s always been a volatile stock, but after its move from $2 to above $8, investors are paying attention. 

Revenue and NNDM Stock

Nano Dimension is solely dependent upon its DragonFly Lights-Out Digital Manufacturing (LDM) system and ancillary products like ink and software. I suppose that isn’t inherently negative, but it certainly introduces risk.

In 2020, Nano Dimension recorded total revenues of $3.4 million. In 2019, the company recorded $7 million, so it had a backslide of 52% in the last year. The company attributes this to pandemic issues causing companies to be more cautious with capital expenditures.

Ironically, the company decided to invest in increasing sales and marketing activities in 2020, including hiring more personnel. Unfortunately, it only sold four DragonFly systems in 2020 compared to 27 in the year prior.

As a result, Nano Dimension’s operating loss for 2020 increased by 141%, to $35.6 million. Its total comprehensive loss increased 481%, to $48.5 million 

The question is, why should NNDM stock have risen so dramatically while the company moves backward?

The answer relates to net cash provided by financing activities which the company outlines on Pg. 34 of its annual report. The company issued $677 million in ordinary stock last year and $13.4 million in 2019.

Investors look to have caught on to the problem of continual share offerings roughly 4-5 weeks ago. Shares have lost one-third of their value since then. 

The company has lots of cash from the offerings, yet it hasn’t translated into organic growth. Companies generally seek external growth in such a situation. 

M&A Shouldn’t Attract Investors

It may come as no surprise that Nano Dimension is seeking an acquisition to justify its offerings by actively looking to acquire a target in Europe. On Feb. 2, the company issued a press release indicating that it is working with CarlSquare as well as with Needham & Co. to advise it on a European acquisition. 

“We are now focusing on two kinds of acquisition targets: One will dramatically expand our go-to-market channels and give us exposure to vertical markets while the other targets include a set of companies that have transformative technologies and products which are complementary to our product roadmap,” CEO Yoav Stern said.

What’s important to understand is that Nano Dimension stock has risen, yet there seems to no fundamental catalyst underpinning that rise. The company has become operationally weaker during the pandemic. Nano Dimension believes that an acquisition is necessary. This is a tacit admission that the company recognizes it cannot grow via its current business.

Any acquisition attempt will be aimed at instilling investors with the hope that Nano Dimension can become a strong operator and fill the gaps that it couldn’t internally.

Don’t buy into it.

NNDM stock will very likely rise again when an acquisition target is announced, but that won’t fix the company’s existing business downsides.

Takeaway

It seems fairly obvious that markets should reward NNMD stock if and when an acquisition target is announced. I imagine that considerations regarding goodness-of-fit and complementary business models will be secondary considerations.

I think shares will rocket upward on any such news, but I wouldn’t buy into a run if you don’t plan to get out quickly. Nano Dimension seems over-hyped and under-substantiated. It is not a long-term investment.

On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.