Following on from my last DD shared here on NYSE:DM, I thought I’d share an update as to why I believe this has high potential for a significant short-term move as well as exponential long-term returns.
Despite the heavy decline in share price post-merger due to dilution and market-wide downward pressure on SPACs/small caps/speculative stocks, Desktop Metal remains a highly appealing company - particularly at current valuations.
WHAT DO THEY DO, AGAIN?
To reiterate my last post, Desktop Metal operate in additive manufacturing (i.e. 3D printing) in almost every area you can imagine, and the company’s technology is protected by over 300 patents with further pending. The company itself originated from the 3D printing of metal products, and their machines are designed to be faster, smaller, cheaper, safer and without needing a trained operator.
However, the company has also made (and continues to make) high-profile acquisitions to further diversify and expand their consumer base. In doing so they have also eliminated essentially all of their competition and gained significant IP and propriety technology security. The company is arguably the industry leader in applications as diverse as fluid power systems, metallurgy, ceramics and polymers all the way to wood products and biofabrication under its Forust and Desktop Health brands, respectively.
The sheer technical ability they now possess is simply mind blowing, and scope of this technology is literally infinite. Prototyping/R&D becomes quick and cheap, supply chain issues can be significantly reduced (if not eliminated), and the means of manufacturing needs no dependence on location for the exploitation of labor restrictions and costs, nor the existence of borders as designs are digital. In addition to this, the company manages and operates its own supply chain in over 65 countries.
WHAT HAS CHANGED?
Since my last post, the company has progressed with strength towards its growth targets and profitability. Desktop Metal and its subsidiaries boast an extensive list of best-in-class customers without disproportionate reliance on any single revenue stream.
Desktop Health launched the Einstein printer along with Flexcera resins, perhaps the most accurate dental 3D printer to date and boasting FDA clearance for permanent use. Furthermore, this transforms the process of creating dentures and other cosmetics to mere minutes, and with perfect accuracy.
The company also welcomed the X-Series line of systems, gained by the acquisition of their main competition, ExOne, in 2021. This system was also adopted immediately by the Ultra Safe Nuclear Corporation for use in advanced nuclear energy solutions.
Kimura Foundry Group puchased a 10th system, stating that "In the first five years after investing in its first ExOne sand binder jetting machines in 2013, Kimura’s revenue increased more than 500 percent as a result of the speed and design freedom the new system provided to end customers" - demonstrating the impact and desirability that Desktop Metal’s systems will have on manufacturers and designers, along with cementing their repeat business from recurring revenue streams such as maintenance, materials and repeat sales.
The company also launched its long-awaited revolutionary P50 system after tripling its production capacity with Stanley Black & Decker as the systems first notable customer of more than eighty in line. Shapeways also committed to more Desktop Metal systems, in turn boosting the value of Desktop Metal’s stake in Shapeways.
CEO Rick Fulop also recently purchased over half a million dollars of DM stock. Fulop is noted as being distinctly protective of the company’s future, explaining the aggression of the acquisitions made using SPAC and dilution funds. Further to this, Fulop has repeatedly stated there is ”zero chance” of a hostile takeover. As such, the company recently filed an ASR, stating “The existence of authorized but unissued and unreserved Class A common stock and preferred stock could make more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.”
FINANCIALS
In the most recent earnings report, the company outlined a 123% growth in revenue in the last quarter, and up 62% excluding revenue captured by the acquisition of ExOne. They also demonstrated expanding margins for the sixth consecutive quarter. Furthermore, total revenue was up 583% from the previous year. The company is guiding for $260M revenue for the current year, up 131% from the last annual report. As of December 31st the company has $272.7M in cash and equivalents, a large enough runway to reach profitability within five years.
STOCK
The company’s stock has spent so far spent 2022 consolidating, and is currently looking to settle into its $4.40-5.20 range after it broke out in mid-March, placing it at a $1.387B market cap as of the latest close. This also places it precisely at a key area of demand and support, and as such I expect a bounce to retest the resistance at $5.20.
The stock has been met with significant resistance at $5.20, but a close above this can signal a further breakout to fill the gap between $7.19 and $8.01 - the average analyst price estimate, and a 50%+ near term move. Such a move would bring the higher range of analyst targets into range, breaking into the low teens.
Assuming that the company continues to execute on their planned trajectory and captures even just their small target percentage of the additive manufacturing market, the stock is easily worth well into the hundreds within the next five years. Just a 5% market capture places fair value at $130/share, and I firmly believe that given the barrier to entry that DM have created via acquisitions, IP, expertise and technology they could capture upwards of 33% - working out at about $830 as a long term price target as a minimum. There is simply no area they cannot penetrate with the same aggression, execution and profitability as Amazon, and I would not be surprised to see this as the biggest growth story of the next decade.
So let me know what you think! I’m currently holding 5000 shares and accumulating until profitability, and likely beyond. The market cap is finding a floor at the company’s core value, so any move lower is entirely unreasonable and unsustainable in my opinion.
