MASS - 908 Devices: Situation Getting Worse

2023-11-28 07:50:06 ET

Summary

• MASS recently announced quarterly results showing weakness, with declining revenue, widened loss, and declining margins.
• The stock price has already experienced a significant correction, but there is still no buying opportunity due to financial and technical factors.
• The company faces challenges in the life science market and intense competition, which could negatively impact its bottom line and expansion.

I last wrote on 908 Devices ( MASS ) in August, and I told investors to avoid it. Right now, the stock price is down around 7%, and at one point, the price was down by more than 30%. It recently announced quarterly results that showed weakness. Its loss has widened, and the company is on its way to potentially reporting the highest-ever annual loss, which can negatively impact the share price in the near term. So, even after the correction, I think there is no buying opportunity in MASS. Hence, I stay with my rating of hold.

Financial Analysis

It recently announced Q3 FY23 results . The revenue for Q3 FY23 was $14.3 million, a decline of 9.5% compared to Q3 FY22. The two major reasons for the decline were lower desktop revenue and a decline in handheld recurring revenues. The recurring revenue declined by 21% in Q3 FY23 compared to Q3 FY22. Its gross margin for Q3 FY23 was 55%, which was 59.1% in Q3 FY22. The gross margin was mainly affected by higher service costs and added expenses for the obsolete inventory.

Its net loss widened to $7 million in Q3 FY23, which was $6.2 million in Q3 FY22. Apart from the declined revenues, increased operating expenses affected the profitability. The challenges in the life sciences market are hampering its sales growth, and by the time this headwind doesn't pass, we might not see any significant growth in the company's sales. In the last quarter, the margins and profitability were down, but the revenue growth was positive; in this quarter, even the revenues declined, which is not a good sign because MASS is a loss-making company, and if they have to become profitable, they have to boost the revenue growth. They are spending heavily on R&D, which should be the case considering their industry. The amount spent on R&D in FY23 has almost doubled when compared to FY18, which is good. But along with the increase in R&D, their net loss has also widened, and there is a high chance that they will report their highest-ever loss in FY23, considering their performance in the first nine months, which might negatively affect the company's share price in the near term. Till the time the bioprocessing and life science market is favorable, I don't expect them to post any significant growth.

Technical Analysis

MASS is trading at $7. Recently, the stock slipped below the $5 level, which was its all-time low back then and created a new low. But soon after the breakdown, the stock recovered quickly and formed a double bottom pattern, which is a bullish reversal pattern. However, I won't suggest investing in this stock as it has a history of trapping investors through a dead cat bounce. This stock has often created a small upward momentum, but every time, the stock price reverses quickly. The recent upmove might be a trap, so one must be very careful when trading in this stock. One should only invest in it once there is solid reversal confirmation, and in my opinion, we might only see a reversal in this stock once the stock price breaks its 200 ema, which is at $8 and not only breaking of the 200 ema is important, but once it breaks the 200 ema the stock price should trade above the 200 ema for at least 15 days. Only once we see these two confirmations might we see a reversal in the stock. Until then, I would advise not to make any new positions in the stock.

Should One Invest In MASS?

Their net loss has widened, and margins have depleted, which has affected its share price recently, and if it goes the same way, we might see more correction in the share price. The company faces a challenge in the life science market with a challenging funding environment. So, till the time there is a funding issue, the company might not be able to boost its revenue. In addition, even after the recent correction, the stock looks expensive. It has a Price /Sales ((FWD)) ratio of 4.74x compared to the sector median of 2.63x. So, looking at the quarterly results, the valuation of MASS still looks expensive. Hence, even after the recent correction, MASS has no buying opportunity based on financial, technical, and valuation factors.

Risk

They operate in fiercely competitive markets. Due to the competition, they might find it harder to sell their goods. They might also experience increased competition, higher pricing pressure, lower profit margins, higher marketing and sales costs, and a failure to gain or lose market share, all of which could have a negative impact on the company's bottom line. Large and seasoned publicly traded and privately held businesses, such as Agilent Technologies (A), Danaher Corporation (DHR), Inficon, FLIR Systems, Shimadzu Corporation (SHMZF), Thermo Fisher Scientific (TMO), and Waters Corporation (WAT), pose a serious threat to them. They are greatly outmatched in terms of financial, technical, sales and marketing, manufacturing, distribution, and other resources by many of their rivals, who also enjoy bigger market presence, longer operating histories, stronger brand recognition, and larger client bases. Furthermore, a lot of their rivals provide a wider range of products than they do. With more resources at their disposal, these businesses can try to improve their market positioning by offering discounts on their goods or combining them with other goods and services in an effort to capture market share quickly. Thus, there is a real risk to the company's expansion from the intense competition.

Bottom Line

The quarterly results showed weakness with negative sales growth, declining margins, and widened loss. The valuation also looks expensive, and if it cannot boost its sales growth in the coming quarters, we might see more correction in the stock price. Hence, considering the weakness, I think buying MASS is still unsafe. Hence, I stay with my rating of hold.

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