Desktop Metal: For Patient Investors Only

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Desktop Metal (NYSE:DM) picked the wrong time to have a bad quarter. The 3D printing company lost almost $67 million, or 26 cents per share, on revenue of $25.4 million during the third quarter. This was much worse than expected, as analysts forecasted a loss of 9 cents a share on revenue of $27.1 million. DM stock is down around 43% since the Nov. 15 report and off more than 77% over the past year.

Source: shutterstock.com/Alex_Traksel

Even if the company hasn’t given up on its mass production system, investors have. Lawyers are lining up shareholders to sue the company for misleading them. And Desktop Metal, which is trading for less than $5 a share, is being called a penny stock.

DM Stock Investors Get Their Hopes Dashed

I have been following 3D printing stocks for nearly a decade, ever since Bre Pettis tried to make the MakerBot Replicator a consumer product after early 3D printing patents expired. That effort failed, as did many others.

What’s now called additive manufacturing is an industrial market. It is led by 3D Systems (NYSE:DDD), based in the Charlotte suburb of Rock Hill, S.C. While DM stock was falling last year, shares of 3D Systems more than doubled.

Desktop Metal was founded in 2015. It went public in December 2020 through a special purpose acquisition company merger with a SPAC called Trine Acquisition. CEO Ric Fulop is a serial entrepreneur best known for A123 Systems, which makes car batteries.

With an expected valuation of up to $2.5 billion heading into its public debut, Desktop Metal was what’s known as a unicorn. And like many other hot stocks, it got swept up in the tech trading frenzy of early 2021, with shares hitting a high of nearly $35 in February.

Since then, it’s been a painful road for DM stock investors. Insiders have dumped shares and DM stock sits 87% below its all-time high made less than a year ago.

Looking Ahead

Cloud and software startups find it easy to scale since the cloud delivers the needed infrastructure at a low cost. Companies like Desktop Metal must make sales and then figure out how to scale manufacturing at a profit.

This has proven difficult. The history of 3D printing, or additive manufacturing, is one of hype, hope and disappointment.

There have been successes, such as in the medical market, where the fine tolerance of the process can deliver a reliable artificial knee or tooth. General Electric (NYSE:GE) has also used 3D printing for jet engines and wind turbines.

Desktop Metal uses a technology for metals like the fused deposition modeling (FDM) process used with plastics by Pettis’ MakerBot. It’s sometimes compared to inkjet printing. For mass production the process is called Single Pass Jetting, spraying a binding agent on metal powder and fusing each layer with pressure. The company also offers its own prototyping software, called Live Parts.

The Bottom Line on DM Stock

Desktop Metal took advantage of the SPAC boom to raise a lot of money.  An ethicist would say it shouldn’t have gone public. An entrepreneur would say that when a funding window opens, you jump through it.

Desktop Metal used this money to buy eight other small companies in its space in mostly all-cash transactions. Investors, who saw this as a profit strategy rather than a growth strategy, were disappointed. However, the biggest of Desktop Metal’s deals, the purchase of ExOne for $191.4 million in cash and stock that was completed in November, will more than double the company’s revenue base.

The 3D printing field is growing, but it’s a game that requires patience. If you’re not willing to hold DM stock for at least five years, it’s better to stay away.

On the date of publication, Dana Blankenhorn held no positions in any company mentioned in this story. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn.

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