The quarterly numbers themselves were good. Revenues rose 68% sequentially. The customer count rose 44%. Gross margins improved to 25% from 5% in the first quarter. These are all nice trends to see.
But we believe Wall Street is looking past these numbers and homing in on two things.
For one, the company lowered its 2021 EBITDA guide. There’s also the risk of potential dilution of DM stock from the part stock, part cash acquisition of ExOne.
Desktop Metal maintained its 2021 revenue guide at over $100 million but lowered its EBITDA guide from a loss of about $65 million to a loss of roughly $75 million.
Meanwhile, the ExOne acquisition involves a $17 in share consideration of Desktop Metal common stock for each ExOne share.
These concerns, in our opinion, are unnecessarily short-sighted.
DM Stock: What Does Matter
Desktop Metal is an early-stage hypergrowth technology disruptor — 2021 EBITDA guides don’t matter.
At this stage, we want to see a company invest in itself via R&D and acquisitions. This way it can capitalize on the immediate growth opportunity and better position itself for long-term success, which is ultimately what matters.
Desktop Metal is doing just that, and we’re happy about it. It’s a long-term win.
As far as the dilution goes, that is concerning. But with the dilution comes the fact that Desktop Metal is absorbing a hypergrowth 3D printing company projected to pull in nearly $100 million in revenues next year and should grow that revenue base 20%+ every year.
Our modeling suggests the added growth firepower here will more than offset shareholder dilution. Ultimately, this will result in higher EPS numbers by 2023 and beyond.
All in all, Wall Street is being far too near-sighted on Desktop Metal here and now. It’s time to double down on DM stock, which has been far too beaten up.
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On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.