Desktop Metal Enters New Phase, Shares Move Higher
Desktop Metal NYSE: DM is an interesting story in that it manufactures and markets a line of 3-D printing solutions for applications of differing sizes. The company has been positioning itself over the past year as a leading supplier of material as well as equipment but ultimately struggled with COVID-induced conditions. Now, however, with reopening well underway and economic activity on the upswing the company is emerging from those darker times and poised for hyper-growth over the next few years. The Q4 results are not only better than expected they blew the Marketbeat.com consensus to smithereens, came with widening margins, and very robust guidance for the year.
Desktop Metal Business Acceleration Is Underway
Desktop Metal completed its 1st full year as a publicly-traded company with one clear trend in place. The business is picking up speed and looking to post triple-digit gains next year and possibly for the next few years afterward. Regardless, the company's Q4 revenue of $56.7 million is up more than 123% from the prior quarter alone and is evidence of a major acceleration in business. The 4th quarter take is nearly half the full-year revenue which is itself up 582% from 2020. Revenue is driven by the initial shipment of the Production System P-50, the first of which went to Black & Decker. It is worth noting, however, that a fair amount of the growth is due to the acquisition of ExOne. Adjusting for that, revenue is up 488% YOY and no less impressive than before.
Moving down to the margin, the company reported the 6th straight quarter of margin expansion and one in which expansion accelerated as well. Full-year GAAP gross margin came in at 16% with gross margin in the 4th quarter topping 22%. On an adjusted basis, the gross margin came in at 27% for the year and 31% for the quarter but there is one bit of bad news. The company’s GAAP loss of $0.92 is $0.11 worse than expected but there is a mitigating factor. The GAAP loss is due in large part to investment in growth and inventory, two factors that will drive future revenues.
Turning to the guidance, the company is expecting to see business ramp again in 2022 and we believe they are being cautious. The good news here is the $260 in revenue is more than 300 basis points better than the consensus and the EBITDA loss is projected to be flat. In our view, revenue growth should easily top consensus assuming supply chain bottlenecks ease in the back half of the year as is being forecast.
The Analysts See Potential In Desktop Metal
If the analysts are right, shares of Desktop Metal are grossly undervalued. The consensus of 6 analysts rating the stock is only a weak Buy but the price target tells a different story. The consensus price target of $11.50 is down in the 30-day and 90-day comparison but is still projecting more than 180% of upside for the stock. In our view, if the stock gets moving again, the $11.50 level is the least of what investors should expect.
The Technical Outlook: Desktop Metal Hits Bottom
Shares of Desktop Metal have been in a downtrend for over a year but may have finally hit bottom. The price action is finding support at the $3.50 level and may be ready to reverse. There is a high 14% short interest as well so the rally may be strong to start. Assuming the market can get above the short-term 30-day moving average we see price action moving up to the $5 level and then maybe to the $6 level within the next several weeks to a few months.
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