Desktop Metal (NYSE:DM) is a designer, producer and seller of 3D printers focussed towards efficient solutions for both mass-production and forward-thinking technologies in a wide variety of fields. So why is this company so exciting? Here’s a brief overview.
WHAT DO THEY DO?
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 some high-profile acquisitions to further diversify and expand their consumer base.
They have acquired Aidro, who specialise in the design and production of valves, manifolds, hydraulic components in the creation of fluid power systems. (Think aerospace, oil and gas, agriculture)
Also, the acquisition of Aerosint and its technology means that the powder deposit system in their printers is greatly improved, speeding up production of a wide range of polymers, metals and ceramics by up to 100x. *(Think everything from small components, large components, to whole products, and entire buildings).
Additionally, the acquisition of Adaptive3D and their printable materials further expand and optimise the manufacturing of plastic and rubber products.
The company also acquired EnvisionTEC and their photosensitive polymer technology (plastics whose properties change with light) and bio-fabrication in the areas of orthodontics and orthopaedics mainly. Additionally to this, the acquisition of Beacon Bio has further opened the door to biotech through the development of regenerative medicine techniques, being able to print new skin, arteries, teeth, ears, and an unfathomable array of other tissues. These two acquisitions led to the launch of Desktop Health, focussing on dentistry, dermatology, orthopaedics, plastic surgery and regenerative tissues.
Most recently, the company announced the acquisition of ExOne (NASDAQ:XONE), one of their main competitors and until recently the #1 stock in ARK Invest’s ETF. They also hold a stake in Shapeways after their IPO.
Desktop Metal also have brought forward Forust, which aims to create *sustainable and high-volume 3D printing of genuine wood products through the recycling of existing/scrap wood *and separating the components (cellulose/sawdust and lignin) before reintegrating them in the printing process, addressing a $1.3T
In addition to all of these acquisitions, DM also inherit existing relationships and clients of these subsidiaries, as well as having their own distribution chain in over 65 countries. It’s also key to note that the digital nature of CAD and 3D printing means that overall manufacturing efficiency and costs come down as there is limited room for error and potentially zero fees from importing materials and components across borders.
BACKERS AND CONSUMERS
The company is backed by many very prominent names, such as Google, BMW, General Electric, Lowe’s, Saudi Aramco, Caterpillar, ARK Invest, Chamath Palihapitiya (to name a few), and features consumers such as Amazon, Raytheon, Lockheed Martin, Goodyear, Continental, Michelin, Boston Scientific, LG, Ford, Nissan, Hyundai, Smile Direct Club, Adidas, Bosch, Medtronic, Cartier amongst many other notable clients. The upside is also that the percentage of these sales is not especially focussed, and so DM’s success does not rely too heavily on any one company’s commitment to their products. They also upsell the services relating to product maintenance.
Since 2015, the company has accumulated some $711.8M in funding, the most recent being the result of a SPAC merger – initially valuing the company at $2.5B. The company’s market cap currently sits at around $1.8B, while their assets to liabilities are $1.02B and $59M, respectively. Revenue was up 68% 2021Q1 to 2021Q2 totalling $19M, and nearly an 800% increase from 2020Q2. The company is also forecasting revenue of $100M for 2021 alone, which is expected to grow by 88% in 2022 by analysts’ consensus. While the company is generating losses, the revenue and consumer growth is undeniable and the company is particularly well positioned by their balance sheet compared to the competition and focussing on both organic growth and strategic acquisitions to attain exponential growth compared to their main rival 3D Systems (NYSE:DDD), to who there is an argument for comparatively decreased upside potential.
As a whole, the 3D printing market is expected to grow from $12B to $150B by the end of the decade, and even a 5% market share would result in an annual income of around $7.5B and growing as well as a stock price around $130. The company is trading at a P/S in the high teens which isn’t exactly unreasonable in current market conditions, and I believe the company is fundamentally undervalued after being beaten down from an all-time high of $34.94 in February to a low of $6.82 in the past month. The stock currently trades at $7.02, and average analyst estimates place this as over $10, with $30 on the high end. It currently appears to be moving out of the medium-term downtrend with a variety of positive indicators which may present a solid buying opportunity.
I feel quite certain that Desktop Metal will become the market leader of a huge TAM if they can maintain their current trajectory, despite sacrificing near-term profitability in favour of strong investment and one of the biggest growth stories of the next decade. I’ve found it quite challenging to wrap my head around the sheer scope of this technology, and after watching patiently and investigating the competition I believe DM is the standout. I am currently DCAing into this stock while it remains under $8, which I believe to be fair value (and perhaps significantly undervalued in current market conditions). What are your views?😊
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