Desktop Metal could have an exceptional advantage (NYSE: DM)

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Office metal (NYSE:DM) is a stock that crashed in 2022, but has quietly nearly tripled from lows this spring. For our many subscribers who may not be aware, Desktop Metal is a company involved in 3D printing that we have traded long and short several times. What’s crazy here is that even after the stock’s massive retracement to the $3 range, the stock is still a bit pricey, even with all the growth in earnings it has seen. It has, however, taken considerable steps to expand its business. Although the company is exciting, the stock has flopped since its IPO and is highly speculative. But this recent rally may have legs. Consider buying for a swing trade when the momentum turns positive again over the next few sessions. We especially like it if you can get the stock under $3.00. Long-term investors are obviously well under water here, but this stock can be traded. We can see the merit of bringing in new money for a multi-year investment at these levels. Overall, the street has liked the stock for a few months, although the market, and technology in particular, has been strong since June, which plays a big role. We like what the company is doing, but this is a very speculative buy.

Why consider this specialized technology name?

So why should investors, or traders for that matter, even consider this name for exposure and possible gains? Before we focus on the business side of things, we want to tell you why we love the business in general. They are really trying to improve the efficiency of 3D printing with the idea of ​​scaling it. If it can be shown to be effective, reliable and efficient, it is likely that this approach will experience massive growth over the decade. Recently, the company announced a new solution called FreeFoam, a new 3D printable stretch foam for mass production. This is an interesting solution for the industrial 3D printing market and for the manufacturing of foam, which represents a market of 120 billion dollars. With this new launch, when fully rolled out, Desktop Metal will increase the total addressable market opportunities. They also have good solutions for automotive, aerospace and defense.

Operationally, the company is struggling to achieve its goals, but the path to growth is in question. There is no income, only income. But that’s a speculative name.

Top line setting records

Many of the company’s actions have resulted in record revenue growth. This is definitely good news for bulls. The massive year-over-year revenue growth is impressive. The quarter just released was above and below consensus estimates. The company recorded another quarter of revenue growth with the highest quarterly revenue ever for the company. Revenue was $57.7 million, representing insane year-over-year growth of over 200% and 32% sequential growth from the first quarter of 2022. Organic growth and acquisitions led to strong quarterly revenues. Revenue was $58 million.

Q2 DM revenue

Q2 Metal Desk Slides

Because the stock is expensive (though much cheaper than a year ago), even in the single digits, the company had to deliver beats to regain momentum, which it did. The beats on both lines were strong. Revenue of $58 million was a substantial beat from $3.5 million. Of course, the company isn’t making any money, which keeps the stock somewhat pinned.

Margins and Earnings

Although the business developments are strong and the revenue is increasing significantly, this business is not making a profit. But the margins are strong. Desktop Metal reported a 170 basis point increase in gross margins from a year ago to 26.7% on an adjusted basis.

Desktop Metal Q2 margins

Q2 Metal Desk Slides

It’s a plus. But the losses are piling up. The company recorded a net loss of $297.3 million, primarily due to a non-cash goodwill impairment charge of $229.5 million following the decline in the company’s stock price and $2.4 million of restructuring charges. Additionally, Adjusted EBITDA was negative $27.5 million. Ouch. This was a larger adjusted EBITDA loss of $24.5 million from a year ago. It is a problem. The company lost $0.10 per share this quarter, which wasn’t horrible, and beat $0.03. The Street agreed with the results but really liked that the advice was reaffirmed.

Outlook

After a stock is crushed, a company sometimes has a decent report and does enough to keep the street happy. In this case, the company reaffirmed its annual guidelines and it really made the street happy, continuing the momentum. For the full year, the company released a revenue forecast of $260 million, more than double last year (131% growth).

Desktop metal guide

Q2 Metal Desk Slides

In addition to this company, an adjusted EBITDA loss of $90 million. It’s hard to lose money like this, but it’s common for businesses when they grow their revenue and customers for a few years. How is their track record?

Treasury

The cash position gives us the impression that now is the time to buy, even if the company is losing money. Now, if the business can continue to grow dramatically, grow its revenue base, and then control costs to achieve a profit, a buy at $3.00 or less will be solid.

However, if losses increase and the break-even point is further away, the company may need to raise more money, further diluting shareholders, and the stock will continue to suffer. With higher rates, borrowing money is more expensive, so they need a path to profit. Of course, in May the company made a $115 million ticket offering, so the money is good right now.

Desktop Metal ended the quarter with $255.7 million in cash, cash equivalents and short-term investments. Liquidity will be sufficient to maintain operations until 2023. The company has strong liquidity.

At Home on Desktop Metal

In the short term, this quarterly report was strong. The stock had been down for months and months and months. It looked like it was heading for a headline below $1. It was hard. Compared to the IPO, it’s been a horrible disaster here. Just well below expectations. But we are seeing extreme growth. We are witnessing the setting of records. We don’t like the ongoing costs and losses, but this business is in expansion mode. Buying stocks is speculative, but could provide huge returns in the short term, and even longer term. All things considered, traders can take advantage of the momentum and earn quick returns here, especially if the stock pulls back for a better entry.

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