Nano-X Imaging (NNOX -3.71%) stock may be down 13% so far this year, but some see a much brighter future for the maker of digital x-ray equipment. Wall Street analysts are estimating that the stock will surge by an incredible 358% this year. For an unprofitable company, that could be a bit hard to believe, but it isn't entirely impossible.
Still, this stock might not be a great purchase for every investor despite Wall Street's bubbly estimates. Let's investigate what's going on with Nano-X so you can gauge whether this could be a good pick for you.
NASDAQ: NNOX
Key Data Points
Gaining traction, but key pieces must fall into place
Nano-X's claim to fame and its sole claim to having a competitive advantage is its x-ray device, the NanoX.ARC. It's special because it uses a digital x-ray source that's allegedly cheaper to use, less expensive to maintain, smaller, and easier to use than traditional analog ray sources.
The company's vision is to deploy the NanoX.ARC worldwide so that it can penetrate previously inaccessible markets for x-ray machines, such as areas that are economically disadvantaged. To make it easier for potential customers to sign on, the company also plans on billing operators based on their usage rather than on up-front costs of the device. In theory, one scan could cost around $40 instead of the hundreds of dollars it might cost for existing technology.
Plus, because the device can use multiple x-ray sources at once to generate images from several different angles with one scan, Nano-X also expects to eventually compete in developed markets as well. Using multiple sources is favorable as it reduces the hands-on time a technician would need to do a patient's scan.The company hopes to draw buyers that are looking to expand their medical imaging capabilities or upgrade their x-ray systems. It may also develop an artificial intelligence (AI)-enabled "robodiologist" based in the cloud that helps radiologists interpret data from x-rays and CT scans.
In 2022, the company brought in $8.6 million from its AI teleradiology services. Right now, it has around $77.7 million in cash and equivalents, and last year, it burned $50.5 million in cash. So if it can start collecting revenue from customers running scans on their devices sometime within the next 12 or 14 months, it'll have enough of a runway to remain in business.
Nano-X expects to ship its x-ray product for the first time in 2023. It already has a handful of customers awaiting delivery of its machines. Nigeria agreed to deploy and operate no fewer than 1,000 NanoX.ARC units in 2021. Ghana has also expressed interest in trying it, which could be another opportunity for the company in the coming years.
It's unclear exactly how many annual scans those two countries would end up doing, which makes the top line hard to predict with precision. For what it's worth, Wall Street analysts are predicting an average of $17.6 million in scan revenue for this year and a massive increase to $78.5 million in 2024.
Much riskier than most medical-device stocks
There are a few catches with the investing thesis for Nano-X, starting with the fact that the Food and Drug Administration (FDA) hasn't yet given the company the green light to use the latest version of the NanoX.ARC, which has multiple x-ray sources. But, the FDA did approve a single-source version of the device in 2021, so it's very plausible that they'll grant an approval for the multi-source model.
Since the company's target markets are largely outside of the U.S. for now, that isn't a deal breaker, but it's important to note that many countries without robust medical device oversight organizations rely on the FDA's rulings when it comes to figuring out what's safe and effective to use. It's also important to note that investors do not have the benefit of the FDA's due diligence regarding the underlying technologies.
The other catch -- and it's a big one -- is that this company's business model of charging for use of the machines rather than for the machines themselves is unproven. That means Nano-X could be a huge success or it could splatter in the face of hard realities about the number of x-ray scans the average customer does per year.
Because Nano-X is on the hook for manufacturing costs of each NanoX.ARC, it could easily lose money on the devices it deploys for years before breaking even on unit costs. That's another pretty scary risk for investors to shoulder.
So until there's a bit more in the way of validation of this business's technology and its revenue model, you should probably not invest in it unless you can tolerate an extreme amount of risk. If, at the end of the year, Nano-X has evidence in hand that it can profitably deploy its NanoX.ARCs in the markets it's targeting and that regulators see the merit in its technological approach, there will still be plenty of time to buy shares and hold them for long-term growth.
