Why is Nano Dimension Stock Falling?
Investing your own money successfully isn’t as hard as most people think. Still, it takes some time and effort. Most people would rather pay a competent financial advisor for advice instead, and they will probably tell you about the importance of diversification, why your age has something to do with your tolerance for risk, the usefulness of dollar-cost-averaging to offset market timing, and how you shouldn’t try to cherry-pick the next Microsoft. An appropriate mix of equity and fixed income index tracking funds with a slowly changing allocation between the two has been a go-to investment strategy for many the successful investment advisor over the years.
On the other side of the spectrum you will find advisors who offer up some incredibly easy ways to lose all your money. We’ve talked about some of these before, mainly over-the-counter (OTC) stocks and all that ICO 1.0 garbage. However, there are also more subtle ways to lose your money, like putting all your eggs in one basket while listening to some expert espouse the merits of a particular stock.
Back in November of 2015 we wrote about an Israeli company called Nano Dimension that had started “pre-selling” their DragonFly 2020 3D Printer, which at the time they claimed was the world’s first desktop-sized 3D printer to produce multilayer printed circuit boards. It’s part of a whole series we did on looking at “printing electronics”. Then in February of 2016, we wrote about Nano Dimension again when they had an IPO on the Nasdaq Exchange under the ticker NNDM prompting us to question if we should be adding the stock to our 3D Printing Portfolio. At some point we got distracted and thank Moses for that. Since their IPO, shares of NNDM have cratered in a spectacular fashion.
In order to put this into perspective, let’s say you bought $10,000 worth of NNDM shares the day of the IPO on the open market and your friend took the prudent route and bought $10,000 worth of shares in a Nasdaq tracker fund. Here’s how you would have both fared:
- You: $1,908
- Your Friend: $15,723
In other words, your friend took very little risk and made some pretty handsome returns while you took on a ishtload of risk and lost most your money. While you’re sitting there licking your wounds, your friend asks you if maybe now is the time to load up on shares since they’re “so cheap right now”. This is a commonly fatal view of investing which somehow equates the dollar value of shares with whether or not they are cheap. But, the question is still valid. Is this a good time to pick up some shares in NNDM? That’s what we’re going to look at.
So, the first thing we did was to go into the SEC Filings Database and look at the latest 6-K filing from Nano Dimension. When we did, this is what came up:
Nano Dimension Ltd. (the “Company”) announces that Itzchak Shrem, the co-Chairman of its Board of Directors has notified the Company that he is taking a leave of absence from his role as co-Chairman until further clarity on the police investigation referenced in the Company’s report on Form 6-K dated May 16, 2018.
So according to an article by Globes Israel on May 16th, “Shrem, one of three people arrested on suspicions of money laundering, aggravated fraud and securities offenses, denies any wrongdoing.” Unlike in the USA where you can get people fired now by merely accusing them of something they did 20 years ago, Israel has something called due process. We must assume that Mr. Shrem has been falsely charged unless proven otherwise. We’re going to leave it at that. Now, here’s the next sentence in the filing:
Avi Reichental, co-Chairman of the Board of Directors of the Company, will act as Chairman of the Board of Directors.
If that name rings a bell it’s because Mr. Reichental used to be the CEO of 3D Systems. If you want to know the whole story in excruciating detail, 3D Printing Industry published an article titled “Hype Hangover: The Rise and Fall of Avi Reichental“. To make a long story short, Mr. Reichental resigned as CEO of 3D Systems in November of 2015 following accusations by short selling firm Citron Research that he was promising more than he was delivering. Of course that’s entirely subjective. Just because Mr. Reichental made Will.I.Am the Chief Creative Officer of 3D Systems, doesn’t mean he was more about flair than substance. At any rate, we’re only one filing in so let’s move on past all this conjecture and get to the financials.
In a nutshell, here are the basics:
Things don’t look too bad. They’re starting to sell their printers. Though they burned through $17 million in 2017, they still have nearly $15 million in cash with no debt. They’re letting us know shares outstanding so we can make sure they’re not issuing shares like mad, which is what some companies do to stay afloat. The question is, just how many printers can we expect them to sell in the coming years?
For an answer to that question, we’ll turn to investment research firm Edison, where an analyst by the name of Anne Margaret Crowe is spreading the word about Nano Dimension by providing some helpful estimates for future printer sales alongside a price target of $4.16 per share:
Ms. Crowe estimates that in 2019, NNDM will be able to generate $6 million in numbers, a ten-fold increase. She’s done all the math and made her assumptions so that you can see where that number comes from. The only problem we have with that, is this one line that can be found at the bottom of her report. If you squint really hard you might be able to see it.
There’s one paragraph in there that we wanted to highlight:
As set forth in the Agreement, Edison Israel is entitled to fees for providing its investment research services. The fees shall be paid by the Participants directly to the TASE, and TASE shall pay the fees directly to Edison. Subject to the terms and principals of the Agreement, the Annual fees that Edison Israel shall be entitled to for each Participant shall be in the range of $35,000-50,000.
Now, we don’t know who exactly is compensating Edison for this report so we’ll have to take it at face value. At least it’s not as bad as Maxim Group which said “Nano Dimension Stock May Double With New Printer” and gave a buy recommendation with a $12 price target back in March of 2016 when shares were at $6.80. That’s around the same time the IPO debuted, so we can just refer to our previous example of how much money you would have lost by following this advice instead of buying a Nasdaq index tracker:
- Nano Dimension Stock: $1,908
- Nasdaq Index tracker: $15,723
Then just last week, a firm called Cannacord Genuity came out with a buy recommendation on Nano Dimension stock as well, citing a $2 price target. Remember how at the beginning of this article we were talking about a spectrum which all financial advisors can be placed on? Guess what end of the spectrum we would put all these price targets and buy recommendations?
The truth is, nobody has any idea how many printers Nano Dimensions will sell, or why their stock price has taken a nose dive ever since the IPO. The real takeaway here is that you should never put all your eggs in one basket and invest in just one stock – which is what a lot of people do with “stock tips” like these. You should also never take the advice of anyone as to what arbitrary “price targets” they think a certain stock will hit. As investment professionals like to say (and they’re spot on with this recommendation), always do your own due diligence.