Don’t you love it when an IPO turns into a flop, but the company looks like it might be a long-term winner? That’s what happened to Oxford Nanopore (LSE: ONT) shares, down 60% since coming to market in 2021.
I wonder if it might be their time to shine now.
Fresh to market
New flotations do often tend to fall, and I avoid them for one key reason.
When the owners of a company decide to float it and sell a load of stock, what’s their motive? Is it to give us a nice chance to buy at a bargain price?
No, it’s to get as much cash as they can, which of course is what they should do. And I prefer to wait and see what the market thinks, rather than pay what the owners ask.
Aston Martin Lagonda is a great example. It launched at way too high a price, then crashed through the floor. Now, after a reboot, I think it looks like a buy. But is the same true of Oxford Nanopore?
Nano what?
First, what does it do? Well, it’s a nano biotech stock, innit? That means it’s good, right?
Well, there’s a caution there. I try hard to avoid buying a growth stock because it has a fancy high-tech buzzword in its name. At least, until I have some clue what it means.
The company says it has “a new generation of molecular sensing technology based on nanopores.” And a nanopore is really just a very tiny hole.
Nanopore membranes, at least by what Wikipedia says, can even detect single biological molecules. I studied biochemistry in a past life. And yep, that sounds pretty neat to me.
First half
Results for the first half are due on 6 September. But we got a preview Monday in a trading update.
The company says it’s seen a 22% growth in its Life Sciences Research Tools revenue over the first half last year. At constant currency, that’s 16%.
Guidance for full-year revenue growth is unchanged at 16-30%. That’s a bit of a wide range, mind.
The firm also hopes for a gross margin of more than 60% this year, and above 65% in the medium term.
It seems like researchers are keen on Oxford Nanopore’s stuff. Chief executive Gordon Sanghera told us that “demand for our technology continues to grow from an increasingly broad and diverse base of customers.“
Time to buy?
But there aren’t any profits yet. In this latest update, the company says it “continues to target adjusted EBITDA breakeven by the end of 2026.“
If we start to see profits coming at that point, as hoped, I think we could be on to a good thing here. But it would only be adjusted EBITDA, which implies negative bottom-line earnings per share.
Will I buy Oxford Nanopore shares? Not now. I’ll let others fund the cash-burn R&D days and take the big risks. And I’ll think again when we’re closer to profit.
