3D printing company Voxeljet (VJET) went public back in October. The timing was certainly spot-on, as the stock price soared 122% on its debut and then went on to double from there. But so far this year, there has been a grueling unwinding. In fact, VJET stock is almost back to its offering price. For the year, the return is about -64%.
What went wrong? Well, as should be no surprise, there are a variety of reasons (and with them, lessons for investors). So here’s a look at some of the key reasons VJET stock has tanked.
#1 — Momentum Investors
Last year, momentum investors poured huge amounts into red-hot sectors like social media, biotech and, of course, 3D printing stocks. Just about all the names in those industries surged. But such moves generally cannot last for long. After all, aren’t markets supposed to be efficient?
Yet the mania was not without a basis. Let’s face it, investors were looking for growth opportunities, and 3D printing stocks offered a good option. For example, the global market for 3D manufacturing jumped from $1.3 billion in 2010 to $2.2 billion in 2012, according to the Wohlers Report 2013. The same study also forecast that the market would reach $6 billion by 2017 and then $10.8 billion by 2021.
That’s a lot of growth. But the 3D printing market had some key drivers. After all, a 3D printer provides for a low-cost way to experiment with different product designs. But there are other benefits like mass customization and reduced time to market, which is crucial in today’s brutally competitive global markets.
Despite all this, the fact is that Wall Street got too carried away. So it was only a matter of time until the 3D printing stocks would have a big pullback.
#2 — Low Float
Besides strong demand for 3D printing stocks, there was also a limited supply of shares on the market. After all, the industry is still in the early phases. Consider that VJET did not sell its first printer until 2002.
But the nature of the IPO process also kept the overall floats for 3D printing stocks at minimal levels. All in all, Wall Street bankers only issued small amounts of stock on the debuts. As a result, it didn’t take much buying power to propel the shares upward. Keep in mind that there were only 6.5 million VJET shares offered in the IPO.
But with the markets bubbly, it was inevitable that 3D printing stocks would see lots of secondary offerings. VJET’s came late on Friday. While only 3 million shares hit the market, VJET stock plunged by 18%! Again, this showed how sensitive a stock can be when the float is that small.
#3 — VJET Stock Fundamentals
With some analysis, it was clear that the company was far from a top performer. By the end of last year, it had only 58 printers installed worldwide and there was only one service center.
In terms of the financials, they were meager. In 2013, revenues increased by 34.2% to €11.7 and the net income fell from a profit of €0.2 million to a net loss of €2.7 million.
In light of its small business volume, the financials have been subject to lots of volatility. VJET sells its printers primarily to large companies, which have long sales cycles. According to a recent filing:
“Because our 3D printers are complex and typically involve significant capital investments by prospective purchasers, we and our sales agents generally need to invest a significant amount of time educating prospective purchasers about the benefits of our products. As a result, before purchasing our products, potential purchasers may spend a substantial amount of time performing internal assessments before making a purchase. This may cause us to devote significant effort in advance of a potential sale without any guarantee of receiving any related revenues.”
Where Will VJET Stock Go From Here?
Unfortunately, there may be more damage ahead. Even after the fall, VJET stock is still far from cheap, with the price-to-sales ratio at 15. That’s high even for 3D printing stocks, as rivals like 3D Systems (DDD), Stratasys (SSYS) and ExOne (XONE) all have price-to-sales multiples in the range of 9 to 10.
In other words, if VJET stock traded at a 9 times sales, the price would be about $8.70. And this would be about 40% lower than the current stock price.
So where will VJET stock go next? Right now, all signs are pointing down.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.