Buyers of 3D printing names like Desktop Metal (NYSE:DM) stock assume that changes in manufacturing technology can happen at the pace of Moore’s Law. They don’t. Rather, manufacturing evolves. Each step must be proven. Each new machine must show its worth. And, each market niche has to be proven as well.
Fancy names, big plans and special purpose acquisition company (SPAC) funding don’t change this equation, either. Last month, I wrote that DM stock is for patient investors only. Nothing has happened since then to change that view.
Here’s what you should know about Desktop Metals moving forward.
DM Stock: Listing and Acquisitions
Desktop Metal used the SPAC boom to go public and list DM stock on the New York Stock Exchange. It then used the $580 million raised in that offering to consolidate its position in the 3D metals printing industry.
The most important deal the company has had yet is with ExOne, which it acquired in November for $561 million. ExOne makes binder jet printers, while Desktop Metal uses what is called Single Pass Jetting. The two techniques are complementary. Both work with metals. What’s more, in both cases, you’re proving metal manufacturing processes one-by-one.
Each product niche and each industrial niche sucks up capital for years before proving itself. Everyone in the industry has to go through this. But that has made Desktop Metal’s money a magnet for them.
During 2021, for example, DM also bought medical-focused EnvisionTec for $300 million. It bought Aidro, too, which works in hydraulic and fluid power.
By acquiring startups in several niches, Desktop Metal has cut their operating costs and is helping them respond quickly to opportunities. One example? A recent $7.9 million order from a German carmaker. Desktop Metal can now also sign research contracts on a global scale, as it did with the Korean Institute of Industrial Technology in December.
It’s Still a Slog
So, acquisitions are helping Desktop Metal grow quickly. That’s good for DM stock. However, the company is still small. For the first three quarters of 2021, DM had revenue of $55 million. Analysts believe that should nearly double when fourth quarter results are released Feb. 28.
But Desktop Metal also continues to lose money. A lot of money. Even if it generated $90 million in 2021 revenue, you’re paying 14 times sales for DM stock. Cumulative losses for the first three quarters came to $169 million. What’s more, since the start of 2022, the stock is down almost 13%. It’s also down by 48% over the last six months and 86% over the last year.
This is has brought out the plaintiffs’ bar, with class action suits claiming investors were lied to. They weren’t. DM said it would invest the money it raised in growth and it did so. It’s not management’s fault that investors no longer like growth stocks.
In lean times, what matters is whether a company has enough cash to get through. At the end of September, Desktop Metal had about $420 million in cash and short-term securities on its balance sheet. It had just $680,000 in long-term debt.
The Bottom Line on Desktop Metal
There’s no Moore’s Law of manufacturing. Improvements are always incremental and hard to achieve. You go metal by metal, industry by industry, deal by deal.
As a business, Desktop Metal is delivering on its promises. But as an investment, DM stock is not.
What investors should look at when the company reports earnings next is the balance sheet. Can Desktop Metal avoid another equity raise, which would water down current investors? That depends on how much cash it has on hand and how much it needs to fund operations.
It’s in managing hard times that Desktop Metals will prove its worth as an investment. That’s why patience and a tolerance for risk are both essential if you’re to buy DM stock.
On the date of publication, Dana Blankenhorn did not hold (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at firstname.lastname@example.org, tweet him at @danablankenhorn, or subscribe to his Substack.