MASS - 908 Devices: Not Worth Investing

2023-08-31 07:49:37 ET

Summary

• 908 Devices announced Q2 FY23 results with an 8.9% increase in revenue, driven by a 27% increase in MX908 device sales.
• The company experienced a significant drop in gross profit margin and an increase in operating expenses, resulting in a higher net loss compared to Q2 FY22.
• The stock is trading 83% below its IPO price level and shows bearish price action, making it advisable to avoid investing in the company for now.

908 Devices (MASS) offers desktop mass spectrometry and handheld devices to life sciences research and industrial biotech markets. MASS recently announced its Q2 FY23 results. Although its revenues grew, I think there are still a lot of areas to work on, like profitability and growth. Even after being 83% down from the IPO level, I think the company is still overvalued. Hence, I assign a hold rating on MASS.

Financial Analysis

MASS recently announced its Q2 FY23 results . The total revenue for Q2 FY23 was $12 million, an increase of 8.9% compared to Q2 FY22. I believe a 27% increase in its MX908 device sales was the major reason behind the revenue increase. Their gross profit margin for Q2 FY23 was 47.9%, which was 59.7% in Q2 FY22. I think increased material expense and warranty costs was the main reason behind the significant drop in the gross margins.

Their operating expenses increased by 11.5% in Q2 FY23 compared to Q2 FY22. I think higher personnel-related expenses were the major reason behind the rise. As a result of a decline in gross profit and an increase in operating expenses, their net loss was higher in Q2 FY23 compared to Q2 FY22 despite higher revenues. The net loss for Q2 FY23 was $9.3 million, which was $8 million in Q2 FY22. They had cash and cash equivalents of $152.5 million at the end of June 2023, which was $188.4 million by the end of December 2022. That is a decline of 19%. So, after looking at the results, I don't think there was anything noteworthy or important that would have compelled me to invest in the company. I believe Q2 FY23 was disappointing because of the significant decline in the margins and the rise in the loss.

Technical Analysis

MASS is trading 83% below its IPO price level. So, investors might not be happy with this stock. It is currently trading at $7.5, and the price action is still looking bearish. The stock has been forming lower highs and lower lows and falling since its debut. So, I would advise avoiding this stock for now because I don't see any signs of reversal. The buying case will only arise if it crosses the $11 level because $11 is an important resistance zone for the stock. The stock has been unsuccessful in crossing the $11 level since January 2023. It has tried twice to break the $11 level but failed both times. Hence, a buying opportunity will only arise if it crosses the level, but until then, I would advise to stay away from this stock.

Should One Invest In MASS?

I think there are still a lot of areas for the company to work. The margins are depleting, and the expenses have increased. Although the revenues grew, they are still a loss-making company. The management is expecting revenue growth of around 7% in FY23 compared to FY22, and with this growth rate, I don't see them becoming profitable in FY23. I personally don't recommend investing in loss-making companies, and the reason is a clear majority of the loss-making companies don't provide returns to their investors, and it is very risky to invest in loss-making companies. It is the same in this case. MASS is down 83% from the IPO level, and I believe high valuation, moderate growth, and mediocre financials might be the reason for the massive correction. So, I think the company has to work on its revenue growth and its profitability to see a turnaround in the stock price. But until then, looking at the momentum and all the factors, I think the stock price might continue to fall.

Now, looking at MASS's valuation. It has a Price / Sales [FWD] ratio of 4.84x, which is higher than the sector median of 2.7x. So, I believe even after such a correction in the stock, it is still overvalued. In my opinion, it is not worth investing in MASS right now. I don't see this company giving any returns to its shareholders in the near term. Hence, I assign a hold rating on MASS.

Risk

It is challenging to accurately forecast the sizes of the markets for their present and future solutions because the marketplaces for their products are changing quickly. They use a variety of internal and outside estimations and assumptions to determine the annual total addressable market for their present and future products. Additionally, as part of their expansion plan, they introduce fresh products and increase sales of their current offerings in markets where they have little to no experience. It may take several years for sales of new or current solutions into new market opportunities to develop and mature. For instance, until sufficient research conducted using novel life sciences technology has been published in peer-reviewed papers, the relevant market frequently does not accept it. Although I think the company's assumptions and the data supporting its estimates of the total annual addressable market for its solutions are reasonable, these assumptions and estimates may not be accurate, and the circumstances under which they are supported, or those under which the third-party data they have used, may change at any time, decreasing the accuracy of their projections. As a result, the estimations of the annual total addressable market for their products may be off.

Bottom Line

I think the company needs to improve in several areas, particularly the financials. In addition, even after being 83% down from the IPO level, I think the stock is still overvalued, and I don't see them providing any value to their shareholders in the near term. So I think it is best to stay away from the company for now. Hence, I assign a hold rating on MASS.

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