Don’t Manufacture Fables on Why to Buy Desktop Metal
InvestorPlace - Stock Market News, Stock Advice & Trading Tips It's fine to have a bullish take on 3D printing, but DM stock isn't the right investment as Desktop Metal...
Headquartered in Burlington, Mass., Desktop Metal (NYSE:DM) is an additive manufacturing company that's mainly known for its 3D printing business. The terms "additive manufacturing" and "3D printing" might entice technology investors to consider a long position in DM stock, but be careful.
It's entirely possible to believe in a business niche, while also rejecting a company within that niche. To be honest, not every 3D printing business deserves your hard-earned money.
Besides, as we'll discover in a moment, DM stock is basically a financial sinkhole. Anyone who has tried a buy-low, sell-high strategy with this stock hasn't been able to implement the sell-high part.
In the final analysis, we'll find that Desktop Metal is in desperate need of a positive catalyst, or perhaps even a miracle. Don't wait around for this to happen, and don't try to be a hero and buy shares of a stock that's unlikely to recover anytime soon.
DM Stock at a Glance
Going back to where it all started, Desktop Metal was introduced to the trading public in late 2020 after completing its merger with special purpose acquisition company (SPAC) Trine Acquisition.
DM stock ran from $10 in 2020's fourth quarter, to nearly $35 in early February 2021. This was the hype phase for Desktop Metal, but it wasn't destined to last forever.
Early 2021 was a time when Reddit traders and retail investors enthusiastically bought low-priced stocks. They may have targeted Desktop Metal for a short squeeze, but apparently they didn't stick around to keep the stock afloat.
Consequently, DM stock tanked in February and then entered into a prolonged bear market. July was particularly bad, as the stock broke down below the $10 level, which is crucial for SPAC stocks to maintain.
Today it's a penny stock, which can informally be defined as a stock that trades for less than $5 per share. This isn't to suggest that all penny stocks are bad, but the market is sending a clear message to sensible traders: don't attempt a rescue mission with Desktop Metal.
The technical damage that's been done to DM stock is extensive, and possible irreparable. Waiting around for Reddit users to resuscitate the stock isn't a viable investment strategy.
All that's left is the value of the company. When the technicals fail, investors have to rely on the fundamentals.
On the surface, it seems like Desktop Metal should be a fundamentally sound company. After all, the additive manufacturing market is expected to reach $146 billion by 2030.
Plus, Desktop Metal generated $25.438 million in third-quarter 2021 revenue. Therefore, the company ought to be on solid financial ground, right?
Not necessarily. The company might brag about its ability to make sales, but that's only part of the fiscal picture. Don't let Desktop Metal's top-line results lure you into assuming that the company is actually in good shape.
For one thing, informed investors must dig deeper and examine the company's capital holdings. Unfortunately, Desktop Metal doesn't pass muster in this area.
At the end of 2020, Desktop Metal had $483.525 million in cash and cash equivalents. Fast-forward to the end of 2021, and the company only had $131.676 million in cash and cash equivalents.
That's alarming, and it will make it more difficult for Desktop Metal to make investments in machinery or in research and development. Moreover, this isn't the company's only financial red flag.
Let's check Desktop Metal's bottom-line results. In the nine months ended Sept. 30, 2020, the company posted a $65.027 million net earnings loss.
This is already a bad omen. It gets even worse from there, however. In the nine months ended Sept. 30, 2021, Desktop Metal's net earnings loss ballooned to $169.167 million.
The Takeaway on DM Stock
There are lessons to be learned here. Always check the fine print, and don't just look at a company's top-line results before making an investment.
Yet another lesson is that there can be an expanding industry with some businesses that are financially contracting.
The point is that Desktop Metal isn't the right 3D printing company to wager your money on. Despite the surface-level appeal, you shouldn't have to settle for Desktop Metal.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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