Shares of Bionano Genomics (BNGO 3.88%) tumbled by more than 55% this year, but that hasn't led Wall Street analysts who follow the stock to walk back their year-ahead price estimates or change their recommendations -- and for them, it's still a buy.

In fact, compared to its current price (near $2.50), the average price target of analysts is $11, which would imply a massive run-up over the coming months. But are those expectations realistic enough to be a factor in your purchasing decision, or would it be better for investors to buy shares of something else? Let's answer that question by looking at the forces driving the growth of Bionano's business and how they diverge from the forces affecting its stock price.

Adoption of its hardware is moving fast

Bionano Genomics makes a device called the Saphyr, which biomedical laboratories use to analyze chromosomes. Specifically, the Saphyr maps genomes and identifies the presence of structural variations, which traditionally requires using a combination of expensive time-consuming laboratory techniques and several pieces of equipment to analyze rather than just one machine. If you're already a bit lost, just know that understanding what structural variations are scientifically is less important than understanding the company's pitch to customers, namely that by buying the Saphyr they can dramatically simplify their chromosomal analysis workflows and potentially save on costs, too.

There's plenty of demand for new Saphyrs, and Bionano is also seeing demand for the consumables that the analyzer uses to run samples. Since the start of 2020, the number of installed Saphyrs has exploded from 83 to nearly 200 as of mid-2022. What's more, its quarterly revenue rose an impressive 73% year over year in Q2 of this year, reaching $6.7 million.

In the long run, the company will continue to develop and install new devices and rake in more revenue from sales of consumable cassettes from its existing customers, giving it a razor-and-blade business model that could prove to be very lucrative. For now, it isn't profitable despite launching the Saphyr in early 2017, and its gross margin has actually gotten a bit worse over the last three years.

The long-term picture isn't clear yet

For the record, Wall Street analysts are bullish about Bionano's performance in 2023, with an average revenue target of just over $47 million, which is a significant increase over their estimate of $26.4 million for this year. So it looks like the thrust of the consensus is similar to management's, as the company expects to see increasing adoption of the Saphyr driven by more widespread acknowledgment of its time and cost-saving features, not to mention a growing body of scientific literature performed by customers using the device.

It seems the Saphyr is becoming more popular, but that doesn't necessarily make the stock a great purchase for everyone at the moment. Right now, the market is extremely pessimistic about unprofitable growth stocks like Bionano, as inflation is rising and policymakers are hiking interest rates to bring it down, thereby making it more expensive for growth-phase companies to borrow money for expansion. As long as each system sold doesn't lead to profits, it's reasonable to expect this stock to keep falling while those economic conditions remain, even if its top line is growing as quickly as it is now. 

That means the short-term picture is likely to be grim for reasons that are largely beyond the company's control. Alas, the long-term picture might not be any better. 

It's likely that sooner or later, powerful competitors like Illumina might build more of Saphyr's structural variation analysis capabilities into some of their many products, eating Bionano's lunch with a combination of deep market penetration and moderate investment in product development. Especially in the event that the total addressable market for hardware like the Saphyr is on the small side, that'd effectively make Bionano obligated to fight desperately for market share, and it might not win.

In other words, this is a risky stock even though Wall Street thinks it's going places. If the idea of losing most of your money isn't intimidating, it could be a big success for your portfolio over the next five to 10 years -- but only if it can prove that it can consistently make more money than it spends.