Let’s be honest. 3D printing stocks don’t exactly have the best track record, as a group. But there’s reason to believe that Desktop Metal (NYSE:DM) could be different. In this Fool Live video clip, recorded on March 15, Fool.com contributors Matt Frankel, CFP, Brian Withers, and Dan Caplinger discuss the company and why now might be the right time for 3D printing technology to deliver for investors.
Brian Withers: All right, I’m up with Desktop Metal. Desktop Metal is leading the second wave of additive manufacturing, otherwise known as 3D printing. Before you turn me off altogether, the industry is moving from just prototyping capabilities to mass production, and Desktop Metal’s high-end systems can print metal parts at a rate of 100 times faster than conventional systems. This technology could actually fill the hopes of the 3D printing that were bashed in the first wave of this industry. They reported their first earnings report as a public company this morning, and I didn’t get to check their results. The addressable market is expected to grow at 25% compound annual growth rate to reach 146 billion by 2030. This technology could be developed for thousands of different kinds of materials, and it has strategic investments from BMW and Ford and 120 patents. Do you guys have insights on this company?
Dan Caplinger: I just looked up real quick. Fourth-quarter revenue more than tripled from the third quarter quarter up to $8.4 million, so we’re still talking about a relatively small company. The main thing I’d say here is that so often you have situations where the second generation of companies in a hot trend end up being the big winners even when the fist generation isn’t. I’d be curious to see what lessons Desktop Metal learned from the successes and failures of the 3D companies before it. It’s a promising area. The idea is just as valid as it was to revolutionize manufacturing. I wish them the best of luck. I think it’s a good business model.
Matt Frankel: Well, I’d have to say, as an investor who got burned by 3D Systems myself, I’m skeptical. I don’t want to say it’s the least likely of these PIPE investments that you’ll find in my portfolio, but it’s close. I think there’s a ton of execution risk to get it right at this point in the 3D printing industry. It’s not really my favorite company and someone else could have the last word and get hit by the disco sound.
Withers: I like the model. They sell a $2 million system. They could generate about $450,000 of consumables each year, which means a customer could generate $6.5 million in revenue and $3.8 million in gross profit over a 10-year life. It’s nice in theory. You guys have a point. I think the execution risk is really where this company is at, but they have existing products on the commercial market that are selling. Dan, you looked up the earnings this morning, so I did. Based on taking Q4’s revenue, multiplying it by four to get an annual run rate, they’re about 148 times the price to sales right now. It’s pricey.
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