Oxford Nanopore Applied sciences (LSE: ONT) was simply the best-performing inventory within the FTSE 250 as we speak (21 July). It soared 20% to achieve 176p, the very best it has been for the reason that begin of 2024.
The one-year return now stands at round 50%. Nevertheless, there’s nonetheless a protracted method to go to reclaim 710p, the extent it hit in December 2021, quickly after the agency went public.
Let’s take a more in-depth take a look at what’s happening.
Encouraging investor replace
Oxford Nanopore has developed a revolutionary DNA and RNA sequencing expertise generally known as nanopore sequencing. This permits the real-time sequencing of extraordinarily lengthy fragments of genetic materials, which is a serious enchancment over older applied sciences.
The information that despatched buyers scrambling for the purchase button as we speak was a half-year replace launched by the progressive firm. For the six months to 30 June, it expects to log income of £105m, up 25% 12 months on 12 months (and 28% on a continuing foreign money foundation).
Based on my information supplier, that was 5% larger than what was anticipated (£100m). Administration stated progress was strongest throughout its PromethION product vary, the place income jumped by roughly 59%.
That is encouraging as a result of PromethION is Oxford Nanopore’s high-throughput benchtop sequencing machine. It’s constructed for organisations like hospitals and pharma companies. These are likely to run giant volumes of sequencing, which implies they undergo consumables corresponding to circulate cells extra repeatedly.
Razor and blades
As extra units are offered and used, this could straight profit the corporate’s recurring income. In different phrases, Oxford Nanopore is working the traditional razor-and-blade mannequin, the place the sequencer (razor) wants a continuing circulate of consumables (the blades).
I used to be pondering how highly effective this mannequin may be just lately in Tesco, as I forked out a small fortune for a handful of Gillette ProGlide blades. The explanation I did so is as a result of I’ve tried the competitors and so they don’t come shut (no less than for my face).
So it’s an excellent signal for shareholders that prospects are loving the PromethION platform. One other encouraging factor was that income within the Americas jumped by 17%, regardless of ongoing uncertainty within the US analysis setting.
The US is a key market as a result of it’s house to most of the world’s largest pharma and biotech companies. It additionally leads in medical trials and genomic analysis, all of which drive demand for sequencing.
Progress in direction of income
The primary threat right here is that Oxford Nanopore remains to be loss-making, and solely expects to develop into money circulate constructive by 2028.
Within the interval, it stated it made “progress on its path to profitability, delivering a discount within the adjusted EBITDA loss, supported by disciplined value administration and gross revenue progress“.
Traders might shortly bitter on the inventory if this progress in direction of profitability goes off monitor. In the meantime, the analysis funding setting within the US stays a little bit of a wildcard.
Lastly, the price-to-sales ratio is 9, which is sort of excessive. This makes a mockery of the concept tech companies can’t command strong valuations in London.
Silly takeaway
Can Oxford Nanopore inventory hold motoring larger? I believe it might, so long as the agency turns in a good second half.
Subsequently, long-term buyers would possibly wish to take into account this progress inventory at 176p. However they must buckle up for a bumpy journey and be affected person for income.
