Nano-X Imaging: Bold Vision, Bearish Momentum, And High Investor Risk

seekingalpha09-29

Nano-X Imaging has seen a significant decline in stock value, shedding over 37% since February, with no strong catalysts to reverse the trend.Nvidia’s small stake in Nano-X briefly boosted the stock, ...

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Solskin Shares of digital X-ray imaging company Nano-X Imaging (NASDAQ:NNOX) have taken investors on a rollercoaster ride in the past year, though it is largely headed downhill. Following a brief surge in February after NVIDIA Corporation (NASDAQ:NVDA) disclosed its stake in the company, Nano-X shares have nosedived, shedding more than 37% of their value. Looking ahead, the absence of strong catalysts and the bearish momentum at this time suggests the stock could lose more value. Fundamentally, the company lacks substance and continues to post significant losses each quarter. Therefore, it’s best to steer clear of betting on this stock at this point. Company Overview Nano-X Imaging is an Israel-based company sporting a market cap of $346.89 million, which develops innovative, affordable medical imaging solutions targeting the underserved. Founded more than a decade ago, the company was mostly pre-revenue until 2020 and posted its first sales in 2021. Moreover, the company went public on August 21, 2020, raising $100 million through its IPO by offering 5.9 million shares between $16 and $18 per share. The IPO helped take its business to the next level by expanding its breakthrough diagnostic technology.   Nano-X Product Line (Investor Relations Nano-X Imaging) Nano-X’s medical imaging solutions include the Nanox.ARC, which is a cost-effective 3D tomographic imaging system offering a more accessible alternative than traditional equipment. Bottom of Form Additionally, Additionally, its imaging system is linked to the Nanox.CLOUD platform, which supports cloud-based image storage, AI-powered diagnostics, and billing services. Most recently, through Nanox.AI, the company has been using AI to detect early signs of chronic diseases while significantly enhancing routine CT imaging. Also, the Nanox.MARKETPLACE offers teleradiology services, connecting imaging facilities with radiologists to expand global access to medical diagnostics.   Operating Revenue By Segment Nano-X (GuruFocus) Furthermore, as we can see from the breakdown of Nano-X’s operating revenue by segment, Radiology Services leads the pack at 95.5% of total sales, amounting to $9.5 million. The other two segments are Artificial Intelligence Solutions and Nanox.ARC systems comprise just 3.3% and 1.2% of revenue, respectively. The company operates a unique business model, offering low-cost X-ray machines without selling them outright. Instead, it charges around $30 per scan in the U.S., with lower fees in other regions. In some cases, the company also charges customers for equipment and installation. Nonetheless, the pay-per-scan model opens up access to underserved markets, which is critical considering that an estimated two-thirds of the global population lacks adequate medical imaging facilities. Hence, Nano-X markets itself as a global company with a presence in Africa, Latin America, and Asia. Some key markets in which Nano-X Imaging operates include Ghana, Mexico, Peru, Chile, Morocco, Cameroon, and South Korea. However, despite the claims, the snapshot below shows that it's still generating 99% of its sales from the U.S. To become a global player, Nano-X must broaden its reach, effectively balancing sales across multiple geographical areas.   Operating Revenue By Geographical Area Nano-X (GuruFocus) Nvidia's Stake and Its Ripple Effect Undoubtedly, the highlight of the Nano-X stock this year was tech giant Nvidia, revealing its stake in the company back in February. Consequently, from February 1 to March 21, the stock gained a massive 88%, reaching a high of $14.28, roughly 57% higher than its current price. Nvidia has been a trailblazer in the AI realm, and the world takes notice when it makes a move. Hence, in capitalizing on its dominant position in AI, the tech behemoth has taken part in more than ten $100 million-plus funding rounds for AI startups this year alone. Moreover, it has backed over 50 startups since last year, cementing its influence in the AI industry.   Nvidia's Listed Company Stakes (Author's Own) From the chart above, we can see Nvidia holds stakes in five listed companies, with the lion’s share of its investment in Arm Holdings (NASDAQ:ARM) (81.6% of portfolio) and Recursion Pharmaceuticals (NASDAQ:RXRX) (14.7%), while holding smaller positions in companies like SoundHound AI (NASDAQ:SOUN), Serve Robotics (NASDAQ:SERV), and others. Nvidia’s stake in Nano-X is the smallest at 59,632 shares, representing just 0.1% of its portfolio. Nano-X is leveraging AI systems and teleradiology services to remotely analyze images, which would’ve piqued Nvidia's interest given its bellwether status in AI technology. If the two companies combine their expertise, they could revolutionize the medical imaging process, reducing reliance on radiologists. For now, though, neither company has commented on a partnership, and investor excitement has died down. Since its initial stake, Nvidia hasn’t upped its investment in Nano-X, and to be fair, the company provided much reason to, especially compared to other bets like SoundHound or ARM. Nonetheless, if Nvidia decides to inject more capital into Nano-X, it could lead to another spike in value. Concerning Cash Burn Raises Multiple Red Flags Nano-X has potential, but its business has struggled to gain traction over the past three years. Over the past 10 quarters, Nano-X has consistently missed top-line estimates while falling short of its bottom line on six occasions. YOY revenue growth has slowed to an unattractive 5.51%, a major contrast to the triple-digit surge Nano-X enjoyed in 2022. Moreover, Nano-X’s net losses have surged from $22.6 million in 2019 to a worrying $60.8 million last year. In its most recent showing in Q2, the company again missed estimates across both lines, with a sizeable $1.23 million revenue miss. Revenues grew modestly by just 3.85% to 2.7 million, compared to the $2.6 million generated in the prior-year quarter. Moreover, encouragingly, it brought down net losses from $17.4 million in Q2 2023 to $13.6 million in Q2 2024. The reduction in net losses was driven by a decline in R&D and administrative expenses. However, a reduction in R&D expenses is concerning for a hyper-growth company like Nano-X, considering its investments in AI and its reliance on tech advancements. Moreover, the drop in general and administrative expenses from $5.9 million to $7.6 million was mainly due to a one-off reduction in legal costs from the finalization of the SEC investigation and class action settlement. Also, gross losses for the company surged by 70.59%, jumping from $1.7 million to $2.9 million, reflecting operational inefficiencies and the lack of top-line expansion. For Nano-X to be successful and profitable, it must scale up quickly. With it incurring the upfront costs for manufacturing, distributing, and installing its X-ray machines, it needs to achieve a sizeable scale to spread these costs across a high volume of scans. With more machines in play and greater scans performed, Nano-X can recover its initial investment and generate recurring revenue. For now, though, it remains more of a cautionary tale and is far from meeting its initial goals of deploying 15,000 Nanox.ARC devices by the end of 2024. Furthermore, these losses are effectively eating into Nano-X's cash runway. Considering its TTM cash and short-term investments of $63.9 million and operating expenses of $49.4 million, it has just a 15.5-month estimated runway. In the past, we’ve seen the company resort to issuing new shares, which has led to substantial shareholder dilution. This is shown in the chart below, showing an increase from $47.8 million in September 2021 to $58.5 million in its most recent filing.   Nano-X Total Shares Outstanding (Seeking Alpha) Further Downside Potential Ahead Nano-X stock has been laggard since the Nvidia stake reveal and hasn’t been able to pick up the pace. It’s now trading hands at $6.16, close to its 52-week low of $4.89, without any catalyst in sight. We saw a small spike in value in late August when it won the FDA’s nod of approval for its cardiac imaging solution. However, since then, the stock has shed 12% of its value, with its average price at around $6.82.   Nano-X Stock Chart (TrendSpider) Its technicals show that the stock’s current price of $6.16 has languished below the 20-day and 50-day exponential moving averages (EMAs), showing sluggishness from a short- to medium-term trend perspective. Moreover, its 200-day EMA also remains far above the current price, pointing to a strong downward trend that’s persisted over the past several months. The stock shows clear signs of weakness and hasn’t been able to break past its $9.60 resistance level, followed by a series of lower highs, indicating ongoing bearish sentiment. The key support level of around $5.26 still holds, but the overall trend points to more bearish momentum. Additionally, the On-Balance-Volume (OBV) line slows downwards, underscoring the lack of strong buying interest. Also, the Average True Range (ATR) shows declining volatility, pointing to potential consolidation before another leg down. Risk To The Thesis While the bearish narrative around Nano-X stock is more compelling, it's crucial to consider the side of the coin. The company's pay-per-scan model offers a promising path towards recurring revenue as its Nanox.ARC systems gain more traction. Despite the costs involved, the model is scalable, and revenues can grow efficiently with increased usage. Moreover, with a greater focus on underserved markets, this approach will likely see widespread adoption as healthcare systems seek more cost-effective diagnostic solutions. Moreover, recent FDA approvals, including its cardiac imaging solution, add substantial credibility, signaling that its technology is safe and effective. Also, the regulatory green light will enable Nano-X to continue expanding its device deployment in hospitals and clinics, boosting its market penetration. Also, despite being remarkably small compared to other bets, Nvidia's stake shows that Nano-X has the potential to leverage AI-powered diagnostics. Nvidia’s involvement validates Nano-X's innovations and potentially opens the door for future partnerships with other tech giants. Final Word on Nano-X Stock Nano-X stock has drained considerable shareholder value over the past few years, with significant volatility pushing down the stock. Following a brief surge after Nvidia's investment, Nano-X shares have dipped sharply, with the potential for further erosion in value.  Though its solutions are promising, along with a massive addressable market to boot, the company hasn’t achieved the scale needed to turn a profit. Moreover, ongoing financial losses, sluggish revenue growth, and limited global reach present major risks. Hence, without strong catalysts, the stock is expected to continue encountering more downward pressure, making it a risky proposition for investors.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2471367658"}