r/StockMarket – DM deep dive


Desktop Metal

https://youtu.be/scHCL05s7ZU

The sector:

The uptake of 3d printing in additive manufacturing has been much slower than had been predicted a decade ago. 3d printing just hasn’t been efficient enough, one of those big inefficiencies is the speed in which 3d printing is done, it is just to slow and thus can’t produce at the volume that is needed to mass produce in sectors like the auto industry. So 3d printing in additive manufacturing has been left for prototyping, customization, and other low volume orders. The innovation will come, and the economic benefits will be enormous. It will drive down costs, a lower average total cost per unit produced. This allows the manufacturer to lower the price and maintain the same margins. When prices are lowered demand increases. This is of course the law of demand, the relationship between price and demand, of course there is elasticity of demand that impacts how much the demand fluctuates based on what is being produced. Increases in wages will drive automation and incentive 3d printing in many industries. There is a clear correlation between wages and automation. The graphic below shows the anticipation or mania for 3d printing and then reality it hits, that most of the time the technology takes awhile to develop, at least takes awhile to develop many different use cases.

https://encrypted-tbn0.gstatic.com/images?q=tbn:ANd9GcSmfXhL5PgKLs1K1yoHZvS6TBWWTd0CDSl1vg&usqp=CAU

Desktop Metal: DM has developed and patented technologies that allow them to print much faster than their competitors, thus allowing them to produce at a volume that Is significantly higher. The method they have developed is called “single pass jetting” it can reportedly print up to 100 times faster than the traditional laser powder bed fusion printing. The argument is that the amount of parts that can be produced per year with desktop metal will be so much greater than the competition and that this will drive significant cost advantages. It is important to note that their 3d printing hardware, the 3d printers themselves are more costly. Desktop metal would argue it is a higher upfront cost that you would make back through the sheer volume that could be printed each year. You can see below that really only DM can produce at the volume needed for mass production. Like mentioned above the market has matured enough for the transition to 3d printing in mass as of yet. DM as of now is best positioned, however the longer the market takes to mature, the more time that DM competitors have to develop new technology. Also, just to mention Markforged has the best software AI combo.

https://encrypted-tbn0.gstatic.com/images?q=tbn:ANd9GcTxrWNKaAKCDfnYdzni3lqol_4PAUNCrZPgGg&usqp=CAU

Another positive for desktop metal is that it offers thousands of possible materials to print with. Ranging from metal alloys to ceramics. Also, with their studio system you can as the raw ingredient use metal rods as opposed to powders. Powders in general can be less efficient as they are literally millions of loose parts. They also offer a SAAS option where someone can custom design parts. SAAS in general offer much better margins that just selling hardware, this would have to hold to really drive future earnings, and help increase margins. Desktop Metal also offers a lower environmental impact than traditional 3d printing more so due to the reduction of waste that it produces. DM also has a lot of blue chip investors and partners like Google and Toyota just to mention a few out many.

Mergers and Acquisitions. DM has used this as a strategy. These acquisitions have allowed DM to grow their customer base, access to patented technology, and spread out into printing in medical technology. This is a stated goal of DM. Of course the valuation and overall value derived from these investments has yet to be quantified. In the short term it has provided new revenue streams, new tech, and access to new sectors.

Financials: The company saw a 234% increase in review during the last quarter, but it is undetermined whether that was organic growth or that came from their acquisitions. In 2020 just over 16 million in total revenue down significantly from 26 million in 2019. Management chalked that up to the pandemic. We will have to see if they can ramp that for the rest of the year. It really is an unknown their ability to execute is one the largest risks. Evidenced by them losing out on a Volkswagen contract to HPQ, despite having the better technology. DM is projecting to reach almost 1 billion in revenue by 2025, so that execution must get much sharper to make that goal, and most likely a growth in the overall sector. Everyone is always concerned about a capital raise, but DM is not cash strapped and has about 500 million in cash and shouldn’t have to raise capital anytime soon. The valuation at 2.5 billion is ridiculous and bakes in some enormous growth. Financials are mixed, great growth first quarter 2021, 2020 was a down year, and the company has significant cash on hand. Unfortunately, and inflated valuation.

Conclusion: I like DM but it is a truly speculative investment. It does have the competitive advantage in possible volume produced per year, and the advantage is significant. However, the demand for 3d printing in additive manufacturing needs to increase for them to take advantage of their technological advantage. Patents provide moats, and they do have patents which protects their advantage. They are very aggressive in acquiring companies they believe provide them an edge, those acquisitions will require patience to determine what value they will return. DM is worth a look at or around 9 dollars. It lowers the significant downside risk. Please watch the video for a more in depth break down.

https://youtu.be/scHCL05s7ZU

Disclaimer: I am long DM Disclosure: I own a small position in DM

submitted by /u/Humble_End_3738
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