Cryoport Stock: Upside Potential, But Risks Remain (NASDAQ:CYRX)
Cryoport (NASDAQ: CYRX) is a company specializing in medical supplies. Their primary focus is the life science industry as they provide temperature controlled supply chain solutions. Specifically, the company invented and manufactured “Cryoport Express”, a dry liquid nitrogen steam solution of 2 to 8 degrees Celsius. This allows manufacturers of fertility treatments, sperm banks, genetics companies and companies in the biopharmaceutical industry to ship temperature-sensitive labs and samples safely. Cryoport operates as a business-to-business solutions company, which means that it does not sell directly to customers, but rather markets its services to other companies. The company continually adapts its technologies, innovations and logistics methods to provide the most efficient solutions possible, whatever the circumstances. In an ever-changing world, Cryoport strives to be the most affordable and adaptable temperature-controlled carrier on the market.
This article aims to prove that it is a worthwhile investment despite the many risks of investing in Cryoport. The main reason for this is their dominance in their field. Despite their relatively small market, their place in it gives them stability and continually increases their income. The cost of operations is a bit of a concern, especially given their negative bottom lines in each of the past four years. Yet the overwhelming financial trend shows a company that keeps growing and improving. This trend is one that I believe is likely to continue. For this reason, I have Cryoport as a buy, and I think investors should pursue this stock with a bullish investment strategy.
Reasons for optimism
The company has several reasons to be optimistic about its future prospects. The first of these is the market in which they fall. The medical supplies market has seen a nice surge due to the growing health concerns and pandemic outbreak. Although their projected growth rate is not robust, it reflects a slow and steady pace of growth that has been consistent over several years within the market. As the need for new innovative medical technologies evolves, so will the market. As it stands, the medical supplies market is expected to grow in size to $189 billion by 2028 at a CAGR of 4.5%. It helps prove another side of the company’s slow and steady approach that has, so far, paid off.
Another interesting factor to assess the future potential of the company is its structure. In contrast, many other competitors in their market rely on selling their products directly to hospitals, physicians, or individual patients; Cryoport markets and sells its products directly to other companies. They have established themselves as a vital link for the movement of laboratory samples and substances to and from various temperature-controlled facilities. This business approach is known as B2B and has several advantages. The first advantage of this style of business is that it has considerable market appeal. Although technically the medical supplies market, the services the company sells are coveted by a wide range of other companies in other markets, primarily the highly lucrative biopharmaceutical market. Because of this and the fact that B2B companies typically sell their products in bulk, Cryoport has an extensive pipeline that generates more profit than many of its medical supply competitors.
Cryoport also recently launched an initiative to repurchase $100 million of common stock and convertible senior notes in an effort to focus on shareholder return. This reallocation of capital could have a very positive net effect for shareholders as it could very well result in a gain via the company’s dividends to be paid. Generally, when a company redeems its own shares, it is for the purpose of increasing its market value by eliminating any excessive dilution of its distributed shares.
Despite the lucrative advantage of investing in Cryoport, it also comes with its share of risk factors. One of these factors will be covered in more detail in the finance section, which is the negative string of net income totals over the past four years. Another cause for concern for the company comes from recent events. A recent fire at one of the company’s manufacturing plants in New Prague, Minnesota will likely slow production rates, negatively impacting earnings in 2022. Although the company does not expect Whether this is a lasting effect is difficult to say until the full extent of damage has been determined and repaired.
Another more negligible risk comes from the company’s reliance on outside partnerships to generate profits. Although many of these partnerships are with more lucrative companies in more lucrative markets, this is not necessarily a positive. Money is power in the market and contractual obligations are a smart way to reduce Cryoport’s costs while preserving the partnership. Any change in the chemical market leading to an increase in their production costs could force them to sell their products at a contractually agreed price. This could result in a massive loss.
The company’s revenue has grown every year since 2018. In 2018, the company had revenue of $19.6 million. In 2019, that number grew to just under $34 million. In 2020, revenue improved again, this time exponentially to a staggering $78.6 million. In 2021, that number nearly tripled again, with Cryoport reporting revenue of $222.6 million. Gross profits have averaged about 40% of revenue or better in each of those four years. In 2018, the company made $10 million in gross profit. In 2019, the company achieved even more, making $17 million in profit. 2020 increased its profits again, this time to $36 million. In 2021, the company set a profit record, with an impressive $96.5 million.
One of the most problematic readings of Cryoport’s financial statements is in the net income column. In each of the past four years since 2018, the company has posted negative results for net income. Revenues and gross profits have increased impressively, but have not yet translated into positive numbers. In 2018, the company recorded a negative net profit of $9.5 million. In 2019, the company reported negative net income of $18.2 million. Total net income fell again in 2020, this time for a loss of $32.7 million. The situation worsened further in 2021, with the company posting a negative net income rating of -$260 million.
The company has also managed to amass a significant amount of long-term debt over the past four years. In 2018, the company had just $14.7 million in debt. In 2019, the company paid off almost all of its debt, bringing its total debt down to just $9,000. In 2020, debt rebounded to $116 million before nearly tripling in 2021 to a staggering $405 million. The fact that they continued to take on debt while posting a negative bottom line rating could undoubtedly be seen as a significant concern.
However, the company has done well to protect itself through acquisitions, expansion and cash flow. In 2018, the company only held $37 million in cash. In 2019, that number grew to $47 million. 2019 saw a drop in cash, with the company closing the year at $36 million before exploding to an all-time high of $139 million in 2021 as the market takes.
Cryoport represents one of the low-reward “risk-reward” stocks in the market and could easily be overlooked. There are significant risk factors at play when considering an investment, such as the company’s negative net income rates and its inability to drive those numbers into the positive despite record revenues. It’s worth wondering if the cost of production will eventually sink them. That being said, their strong pipeline and market position leaves them poised for continued growth. This would be a stock an investor should be prepared to grow with. However, in my opinion, it’s one that could pay off big down the road. For these reasons, I believe the future is bright for Cryoport.