IonQ Inc. (IONQ, Financial) is on a mission to build the world's best quantum computers to solve the world's most complex problems.
The hardware and software company based in College Park, Maryland. is developing a general-purpose trapped ion quantum computer and software to generate, optimize and execute quantum circuits. The computer is based on trapped ions, which are atoms that have been stripped of their electrons and held in place by electric fields. Trapped ions are a promising platform for quantum computing because they can be manipulated very precisely and they have long coherence times, which means that they can maintain their quantum state for long periods of time.
The company believes that quantum computing has the potential to revolutionize many industries, including finance, chemistry and materials science. Investors of the stock should be very happy as the one-year performance is about 153% and has an even better year-to-date return at nearly 330%.
Given this meteoric surge, I now believe there is a major problem investors should focus on. The valuation is too stretched and the market capitalization is out of sync with the revenue figures for the past two years.
Earnings update
The company announced its second-quarter financial results on Aug. 10, reporting $5.5 million in revenue, above the high end of the range, and the full-year sales outlook increased to between $18.9 million and $19.3 million.
IonQ also increased the full-year bookings outlook to range from $49 million to $56 million. For a company with a market capitalization of $3.15 billion, the revenue is too low to justify this valuation. Some of the latest financial ratios suggest its valuation is now way too high.
Valuation
IonQ's price-sales ratio is 234.48, the price-book value ratio is 5.71 and the enterprise value-to-revenue ratio is 183.54. In contrast, the technology and hardware industry has median values of 1.38 for the price-sales ratio, 1.81 for the price-book ratio and 1.34 for enterprise value-to-revenue.
Another important problem I see for this cloud computing company is that it lost many in 2021-22 and its operating losses have widened from -$38.6 million in 2021 to -$85.74 million in 2022.Research and development expenses have also increased along with the selling, general, and administrative expenses. Without substantial revenue, it will be hard for IonQ to report positive operating income and net income.
I also see that there is stock dilution over the past three years. In 2020, the company had 115 million shares outstanding, which grew to 198 million shares in 2022.
Conclusion
IonQ is one of the leading companies in the quantum computing industry. It is well-funded, has a strong team of scientists and engineers and is making significant progress in the development of quantum computers.
The company is well-positioned to be a major player in the quantum computing revolution. However, it is losing money and it is still making minimal revenue that cannot justify its lofty valuation. The future might seem bright for IonQ and its business, but I do not find it attractive currenlty.
