Seeking Alpha
Long/short equity, growth at reasonable price, research analyst, deep value
Profile| Send Message| ()  

With a 47% gain on the first trading day of an IPO, it's difficult for any stock to gain in the after market. Industrial 3D printer ExOne Company (XONE) is attempting to be the rare exception after impressing investors with strong guidance for 2013. The stock surged nearly 10% in trading on Thursday following the announcement.

The company that focuses on manufacturing and selling 3D printing machines for industrial customers only sold 8 machines for the quarter making it difficult to develop a long-term investment thesis.

Due to the late date of the IPO, the company is just now reporting the Q4 numbers at the very end of Q1. With the quarter virtually over, the 2013 guidance should be very solid at least for the first half of the year.

Q4 2012 Highlights

The company provided the following highlights for Q4 2012:

  • Achieved record quarterly sales of $12.7M; eight machines sold in the quarter.
  • Revenue for Q4 2012 reached $12.7M, up $10M from last year.
  • 3D printed parts and material revenue increased to $3.8M from $2.5M last year.
  • Net income of $0.9M was improved over a net loss of $2.8M during the same period last year.
  • For the full year of 2012 revenue was $28.7M, up 87.6% from revenue of $15.3M in 2011.

Revenue for Q4 ended up slightly higher than what the company reported in the S-1. The amount though is very immaterial and difficult to justify as any pattern. The company was so dependent on a few machines that any change in orders or delays would have dramatically changed the outcome.

Striping out the dramatic increase in machines, the PSC revenue increased 52% during the quarter. The amount of only $3.8M is a drop in the bucket to the market leaders, but that growing number is encouraging considering the large machine deployment during Q4 should help boost future parts and materials revenue.

Interestingly the company only reported earnings of $0.07, but it conveniently failed to list that number in the press release. Presumably, if the company excluded stock-based compensation, the earnings might have been in-line, but again those numbers weren't disclosed.

2013 Guidance

The company anticipates the following numbers for 2013:

  • The company estimates full-year revenue to be in a range of $48M to $52M with approximately two-thirds of revenue expected to fall in the latter half of the year.
  • Gross margins for the year are expected in the 42% to 46% range.
  • Operating expenses are expected to be in the range of $18M to $21M.
  • Company plans to launch two additional PSCs during the second half of 2013.

The guidance is basically in-line with the previous analyst estimates of $49.7M for the year. At the mid-point of the ranges, the company is forecasting operating income of roughly $3.5M, which is a solid number for a fast-growing company.

The one issue some investors might have is that the company only spent $1.9M on research and development during Q4. Clearly, the guidance doesn't include a massive bump in those expenses to allow for the operating income level. On the one hand, the industry has great discipline providing for strong profits. On the other hand, a large competitor from the technology or manufacturing sector could enter the industry with a more sizeable budget and pressure ExOne and the other public firms.

The company stated that it had delivered four machines in Q1 and anticipates delivering another four to six in Q2. At around $1M a machine, investors can quickly see how the numbers will pan out.

Stock Valuation

Investors were happy with the results, sending the stock to new highs. The market cap is now at $450M, making the stock worth 10x this year's revenue. As an example, market leader Stratasys (SSYS) trades at 6.6x revenue estimates for 2013. With revenue growth more than double the pro-forma 30% growth of Stratasys, ExOne is probably trading within an acceptable range.

Conclusion

ExOne had a solid earnings report right out the gate after the IPO, suggesting a bright future. Investors should be careful paying up more than 10x revenue. The company and the sector has a long growth trajectory ahead, so the astute investor will spend the next couple of years buying on dips instead of chasing the stock after a good month. Anybody following Stratasys could have recently bought at $60 and watched the stock rally to $75 within a month. Those investors chasing the stock could easily be facing losses from when it hit $90 in January. ExOne investors will face the same dilemma with the wise ones buying on the next pullback.

The biggest risk remains that a large firm enters the sector and destroys the earning power of the existing companies. Whether successful or not, the entry would destroy the stocks of ExOne and Stratasys in the short-term, which is another reason investors should be careful chasing these stocks or any hot sector.

Source: ExOne Reports Huge Growth As Expected

Additional disclosure: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.