BNGO: Good potential short stock

Similar to the other idea I put up, BNGO operates in the life science tools market. They produce a product used by researchers in order to put together genomes from shorter lengths. This results in lower costs genomes vs other tech like that of PACB, though at a somewhat lower accuracy. The primary uses of this sort of stuff has been in research up until now with pretty low addressable markets. BNGO itself has minimal revenues.

That said, BNGO popped ~30x from Dec. - Feb., largely due to interest from retail investors, and potentially from increased interest in long read type technologies because of a partnership between PACB and NVTA, and a large investment in PACB by Softbank. The increased interest relates to NVTA’s clinical whole genome offering, for diagnosis of rare conditions, which are generally better diagnosed via long read technologies than the predominant short read style that’s the vast majority of sequencing. Short reads are less expensive (you may be looking at a handful of genes vs. sequencing an entire genome), so while sequencing a whole genome with short reads may cost ~$600, it may cost a few times that with a more accurate long read type of tech. But because you’d only be looking for maybe a couple genes, you don’t generally sequence very much. Rare conditions are often spread across more of the genome.

All this isn’t to say anything specific about BNGO, except that it operates in similar markets, and some investors presumably think they’re gonna be able to benefit from the recent interest in PACB’s type of technology.

My view is that BNGO is likely not very different than it was in Dec on a valuation standpoint. It raised $200M, so I’d add the ~$150M market cap to that to come to a valuation of ~$350M. Through a short, that represents ~80% upside from current valuation levels. I’d suspect much of this playing out over the coming several months just as a result of cooling of interest. That said, this technology could benefit from a similar deal or partnership as PACB, or some other dynamic, so I view it as a non-zero risk, particularly from a volatility standpoint.

About a month in and the stock is down ~20%.

What’s the next short?!

No clue, I dont go looking for shorts, I just know them when they’re obvious. Thats been the case with the three that I’ve posted here. There were also just a ton of stocks that got pumped up way beyond whats reasonable earlier this year so it was a somewhat unique situation.

the stock is up to $4.86 from $4.41 at close based on the after market close earnings report.

Peter: It is. However, that is irrelevant. The beat was $3.2M vs consensus of $3.0M. This is a business that was $1.1M last year. That is not explosive growth. Furthermore, if we look back to mid December for instance, before the stock price jumped 30x (and ~9x where it is today), we can see that the consensus estimate for 1Q21 was $3.6M. So the company underperformed expectations from as recently as a few months ago. Full year 2021 revenues have come down from $18.0M then to $16.3M today. Consensus 2022 revenue has also decreased from $30.5M to $30.0M.

This performance does not justify the 30x increase in stock price (now 9x) over the past few months. If anything it suggests the opposite. The underlying company shouldn’t be trading meaningfully above where it was in December. If anything it should be trading below.

Also, the company is trading at 75x consensus revenue for this year. Lets just keep that in mind. This is a stock that would have to have performed exceptionally well to justify the stock price it was at before the 30x bump. It has literally underperformed those expectations. What we are seeing in the current prices its trading at are the hopes and dreams of completely uninformed retail traders, combined with what I think is to a lesser extent the hopes of some investors that they may get some sort of partnership similar to PACB got with NVTA for a collaboration to produce a less expensive whole genome offering.

If there is a bump tomorrow (maybe even for a couple days after), it probably won’t last. BNGO had a $4.0M revenue number for 4Q20 vs consensus of $3.5M, and it was down 11% the next day, and has continued to slide.

Overall, nothing about this quarter changes the fundamental thesis that the stock is extremely over valued.

Also, to give a little more context as to those who are on the other side of the trade:

These guys are not sophistiicated investors, and they do not understand what they’re talking about. They don’t understand the science or the technology, the other competitors in the space and what their technology can do (their competitors can already do what they are hoping to do eventually), or in my view likely much about financial analysis. These are the dumb money.

Down ~40% since I originally posted this, vs +8% for the SP500. Still more to go but it’s also been going down in tandem with a lot of similar names in the tools space. Theres been a big shift from growth to value over the past several months which has probably played part of the role in its decline, but I think its still fundamentally overpriced. They’re just too specific to hemtological stuff and not getting the sort of hockey stick trajectory that they’d need to justify the valuation levels. That volatility in the stock was a big factor earlier this year though, crazy it went up almost 50% before coming back down. At least that made another opportunity to get in on a short position.

Down another ~10%. Been seeing a lot of red in the more growthy side of healthcare recently, likely to a large degree due to anticipated interest rate increases making people value the speculative stocks less. So a short would’ve made ~50% so far vs. a 13% return for going long on the SP over the same period of time.

Dont tell me what you think, show me where your money is :slight_smile:

That is: how much have you made on your prescience?


BNGO has continued to slide over the past couple weeks. This has resulted in a gain of 62% on the proposed short since I first wrote this idea in April of last year (vs. a gain of 8.7% for the SP 500 over the same period).

The stock is approaching my own view of where to aim for to get out while leaving a bit of downside as a buffer, so I am going to call this idea closed. I think it can still go down to ~$1.50-$2.00 (I even think it’s likely that it’ll continue to slide), but I think there are likely better ideas out there at this point, particularly for long term investors, as high quality names in growth areas have been crushed over the past few months.

It’s been enjoyable and educational watching this and the other ideas I’ve posted, and I’m happy to talk if anyone wants to go through any ideas. The past year definitely gave rise to some unusual situations and dynamics, which are likely uncommon. I certainly don’t go out looking for shorts, and really just know them when I see them as being obvious, so it was interesting to see these two come back down to earth, to a large degree.

So it took another 3.5 months to get down to the $1.50 mark, which is the low I expected. Interesting. I’m really curious how low it can go. I am curious if it can get to a negative enterprise value like NNDM, though I doubt that. That said I should’ve factored in a $100m acquisition they made, so it’s possible they could get down to around $1.20 or so.