With a unique business model and its growth story just starting, Nano-X Imaging (NNOX 0.45%) could be a great growth stock to own for the rest of the decade. Few other medical device businesses have the same combination of potentially explosive near-term growth paired with the possibility of sustainable and enduring recurring cash flows for years to come.
But with such an ambitious roadmap, there's a big risk of falling short along the way, which could leave shareholders in the lurch. So let's map out where this company is likely to be in mid-2026 to see if it might be worth adding to your portfolio in light of its potential pitfalls.
It'll probably be packing on revenue wildly
Nano-X's X-ray machine, which is called the Nanox.ARC, is special because customers get charged for each time they use it for a scan rather than for the purchase of the device itself. The point of doing things that way is to court potential buyers that don't have enough cash to shell out for a traditional X-ray machine. That means many of the company's customers are outside of its home region of Israel.
It also means that this business is planning on being a recurring revenue king among a field of competitors that primarily rely on nonrecurring hardware sales to grow. And over the next three years, it'll be launching the Nanox.ARC around the world, starting a period of very rapid growth of its top line, and likely its stock, too.
Today, the green shoots of its growth are starting to appear. It's sending hundreds of its devices to Ghana, Morocco, and Nigeria, with many more customers said to be in discussions to get units of their own. Since January 2022, its quarterly revenue is up by 87%, reaching $2.4 million in the first quarter of this year.
Management calculates that if it collects $14 in revenue per scan and the average Nanox.ARC device scans 20 patients per day, every day, with a base of 6,850 units installed and operating worldwide, the company will be bringing in at least $500 million in sales per year. It's unclear what the timetable is for reaching that number of units emplaced, but within three years from now, investors will have a much better idea about the schedule. And with a little bit of quick math today, we can figure out where that kind of revenue would leave its stock price relative to now, assuming management's numbers are in the right ballpark.
The medical equipment industry's average price-to-sales (P/S) multiple is 3.8. Therefore, if we multiply its potential future revenue by the average P/S, we get a market cap of $1.9 billion, which is 122% higher than its value near $854 million today. For what it's worth, the analysts on Wall Street figure, on average, that the stock will rise by 105% over the coming 12 months, but their estimates call for around only $13 million in sales for 2023 and nearly $59 million in 2024.
Bumps in the road may be painful
Investors should take care that the calculation (and Wall Street's estimate) are contingent on the company moving quite a few devices out the door and into customers' hands before the middle of 2024. As more machines ship, and as existing machines are utilized, the market will likely bid up the company's stock price to account for the expectation of the rollout continuing successfully. Remember, the market is forward-looking; it'll be pricing in the benefit of additional revenue before it is actually earned by performing scans or reported by Nano-X. And that could imply a serious risk.
There isn't any guarantee that there will not be any issues with Nano-X in the next three years. But consider what would happen if it reported that it was having trouble manufacturing enough units to ship to customers, or that customers were not using their units as much as management might have hoped. The latter problem would be the more troublesome one, as it'd undermine the entire hypothesis of its business model -- which, to summarize, is that customers without much capital would be prolific users of X-ray machines if they could afford to buy one.
Still, there haven't been any stumbles with the launch of Nanox.ARC just yet. In mid-2026, the company will likely be significantly more valuable, even if the rollout has a few hitches along the way. It might even see demand accelerate once there's enough proof of the product's viability among clinicians in the target markets. And if its core promise holds true, shareholders will reap the benefits of an incredibly long tail of recurring revenue generated from a steady number of scans. If that sounds good to you, consider buying a few shares soon, as there probably won't be another opportunity just like this one.
