Desktop Metals stock jumped more than 30% on better-than-expected earnings yesterday, and continued the run of 8% so far today. The 3D printing stock are in my radar for a while, and today I want to discuss the 3D printing industry and why I think $DM is one of the stocks to worth investor’s attention.
3D printing industry has been growing in the past decades, it revolutionized manufacturing industry by shortening time-to-market process, reducing the cost and enabling more manufacturing complexity, accuracy and customization. To be more specific, the increasing adoption of 3D printing technology could:
1. Increase supply chain flexibility, as the production location are not limit to one location with mobility of 3d printing machinery;
2. Bring down the manufacturing cost to 1/10 (on average) comparing with traditional manufacturing, as the automation process could save labor cost, especially applicable to the market like US where labor cost is high
3. Has especially strong advantage in manufacturing unique shape model, when it is difficult to manufacture in the traditional way
Desktop Metal company is the pioneer of a new generation of 3D printing technologies focusing on AM 2.0 — the volume production of end-user parts. The company offers a comprehensive portfolio of 3D print solutions, including the 3D printer and materials, software and services, with support for metals, ceramics, sands, plastics, wood and a variety of other materials. The company’s solution span use cases across the product life cycle, from design to mass production to aftermarket operations, and they cover an array of industries, including automotive, aerospace, healthcare and dental machine design etc.
(Source: Desktop Medal Website)
The Bulls of DM stock:
1. In February, the company has announced to reduce its workforce by around 15%, which would save $50M in 2023
2. In the latest financial report released in March 1st, The company generated $60 million in revenue in the 4th quarter, beat Wall Street expectation of $54 million. The total revenue for 2022 is 209 million for the year, up 86% form USD 112 million year over year.
The Bears of DM stock:
1. Although the company has revenue growth, its net income is still negative, with -$740 million for the year, which is expanded compare with -$240 million last year. Moreover, the gross profit margin has declined form 16.3% to 7.2%.
2. Giving new guidance for 2023, Desktop Metal predicted that sales might grow to $210 million (up 0.5% year over year) — $260 million (up 24% year over year). Comparing with Wall Street expectation of $260 million in sales this year, it seems that the sales boom in 2022 is not sustainable this year. So is the stock price jump in the past 2 days.
3. Insider is selling: as no one will sell stock at a low price, the selling action of the company executives may show they are not expecting the stock to go up even more.
In a word, 3D Printing is the 4th industrial revolution and DM is one of the key player in the market, which both guru Chamath Palihapitiya and Cathy Woods has invested in. As the company has not turn profit yet, the stock price would be quite volatile and investing in stock will be risky. In terms of valuation, PS is 3.07, and PB is 1.23, and Morningstar gives Fair Value of $4.54 with extreme high uncertainty, and the best buying price is less than $1.68. As a small growth stock, it may be a risky small bet with less than 2% of position and lower pricing point later on.
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