Life sciences equipment manufacturer Bionano Genomics (NASDAQ:BNGO) was a popular meme stock last year. Consequently, its management raised a massive amount of cash through equity offerings. However, it has failed to sustain investor interest, as its flagship optimal genome mapping tool Saphyr hasn’t gained much traction in the medical community. It continues to grow at a sluggish pace, and it appears that the market is overestimating BNGO stock’s potential.

Bionano Genomics is one of the top genome analysis companies, earning most of its revenue from the sale of its Saphyr tool. Bionano also has a chip consumable and diagnostic testing services segment. The company believes it has a multi-billion dollar market opportunity from the two segments mentioned above. Hence, if it achieves such numbers, the company valuation could soar past the $10 billion mark.

However, it’s pretty much conjecture at this point, given its recent performances. Therefore, it’s tough to feel upbeat over BNGO stock at this time.

Red Flags

There are multiple red flags with Bionano fueling its bear case. BNGO’s revenues have been growing at a lackluster pace, suggesting that its customers aren’t enthusiastic about its unique product. Moreover, it relies on outsourcing its production to third parties, as it doesn’t have a manufacturing facility. Hence, it has no control over its supply chain, which could seriously impact its existing revenue base.

The effectiveness of Saphyr is also in question. There’s a lot of discrepancy in the structural genomic variations it can detect compared with its peers, such as Pacific Biosciences (NASDAQ:PACB). Hence, this raises questions about the long-term potency of the tool. Moreover, industry insiders believe its optical imaging technology is slightly dated.

Next-generation sequencers (NGS) are now the go-to tool for detecting structural variants. NGS enterprises are now paying serious attention to the genome sequencing market. The market has incredible potential to blow up in the coming years, which could pay many dividends for NGS companies. With more investment pouring into the sector, there will be more competition and alternatives for optical genome mapping.

Therefore, BNGO stockholders are in for more woes ahead. The company is up against the stiff competition in the diagnostics sector. It competes with relatively cheaper legacy genome analysis methods, including QF-PCR and Karyptyping. Hence, Saphyr’s competitive advantages are marginal at this point.

Outlook for Bionano

Bionano recently released its preliminary results for the fourth quarter, which showed a 69% increase in Saphyr device sales compared with 2020. That takes its year-end total to 164. Having been in the business for close to 20 years, the company only has 164 sales to show for. Disappointingly, Bionano expects to generate just a measly $30 million in revenues this year. The genetic testing market is expected to grow at a healthy 10.1% from 2020 to 2027 to $21.2 billion.

Bionano has enough resources to expand its revenue base and take things up a notch. However, it remains to be seen how its efforts will bear fruit in the coming years. The meme stock frenzy gave it a new lease of life, but it’s now valued at highly unattractive levels. BNGO stock trades at a whopping 32 times forward sales.

Final Word on BNGO Stock

BNGO stock had garnered much attention during the meme stock mania last year. Unfortunately, its underlying business hasn’t been able to attract serious investors. Its performance has been uninspiring so far, and it’s unlikely to turn on the afterburners anytime soon.

Moreover, with the stock trading at such high multiples, it’s best to avoid it at this point.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.