voxeljet: Is There A Bottom In Sight?

| About: voxeljet AG (VJET)


Downsized stock offering and an offering price far below market shows significant lack of demand.

voxeljet delivered solid revenue growth in Q3 and Q4 on the heels of strong machine sales.

Services revenue growth was flat on capacity constraints, significant growth expansion is expected in the second half of the year.

There might be room for additional downside, which will depend on the overall trends of its peer group.

Current valuation would seem justified if voxeljet could keep its growth momentum in the coming years.

I wrote about voxeljet (NYSE:VJET) in October 2013, shortly after the company went public. Although I was mostly enthusiastic about voxeljet's growth prospects, I was concerned with a quite high valuation, which was higher than any of its peers, based on a P/S ratio. At the time, the stock was trading in mid 30s, and doubled to $70 in less than a month. We all know what has happened since, and at the time of writing, the stock is worth $14.34, its all-time low. voxeljet is still trading at a premium over its 3D printing peers, although this could be justified by its higher revenue growth. Although I believe the stock might go down even more from here, we might be near a sustainable bottom. However, this will be dependent on the overall trends of its peers, and I would look for any clues for the bottom from 3D Systems (NYSE:DDD) and Stratasys (NASDAQ:SSYS), which are the leaders of the 3D printing group.

Significant discount in the stock offering indicates low demand for shares of voxeljet

The downsized secondary offering and a steep discount over the market price has induced strong selling pressure, and voxeljet's share fell from $25 to $15 in just four trading days. Insiders were about to sell one million shares, and the company intended to sell three million shares. The lack of demand has prompted insiders to pull out of the offering, while the company priced the offering at $15. voxeljet expects net proceeds of $41.4 million. A significant discount indicates low demand for voxeljet shares, which seems justified given the recent trends of declining share prices in the 3D printing space. 3D Systems' share price has more than halved over the last several months, Stratasys is down 30% from its early January highs. The biggest losers are voxeljet and ExOne (NASDAQ:XONE), as they declined 79% and 67% respectively from their all-time highs. The share price declines of voxeljet and ExOne are typical for high growth stocks. William O'Neil concluded in its book "How To Make Money In Stocks," the typical growth stock will fall by an average of 72% off its peak. However, if the current selloff in the general market continues, all the stocks in the 3D printing group might suffer additionally.

Solid revenue growth in Q3 and Q4, services revenue growth expected to accelerate in 2H 2014

voxeljet's Q4 revenue grew 78% Y/Y to €3.7M ($5.1M), ahead of analyst estimates for €3.4M, and ahead of management's expectations for revenue above €3M. Revenue in Q3 grew 77%. The company sold 3 printers in Q3 and another 3 in Q4 and the systems revenue was the main contributor to strong top line growth. Services revenue growth was in single or low double digits in Q3 and Q4, but this is due to capacity constraints. The company expects to have access to higher printing capacity by the end of Q2, as it finishes the relocation process in Germany. The company expects a significant increase in services growth due to growing demand for on-demand parts. Another contributor to accelerating services revenue growth will be the 3D printing service center in Canton, Michigan. The first machine should be operational at the end of Q2 this year, and the company expects to begin delivering on-demand printed parts in Q3. This facility is well positioned to capture demand from the U.S. automotive industry and potential customers in the Midwest region and Canada. Management expects that the U.S. facility will have similar printing capacity as its new German facility by 2016. This positions voxeljet to potentially triple its annual services revenue by 2016, notwithstanding new expansionary moves, which are expected in the next couple of years. Asia presents an important growth opportunity for voxeljet, and the company plans to expand its services business there next year.

voxeljet's execution on the revenue side has been above management guidance and analyst estimates. This might be an important feature going forward, and puts the company ahead of ExOne, which has failed to deliver what it promised in all four quarters since going public.

New products and materials should boost demand going forward

voxeljet introduced its new 3D printer, the VX2000, at the Euromold show in Frankfurt in December. Management noted that the response was "extremely favorable" and the company received the first order for this printer recently. VX2000 is one of the largest commercially available 3D printing platforms in the market and is "uniquely suited to a variety of applications in the automotive and aviation industry at foundries, pump manufacturers or the equipment building industry."

On the materials development side, the company is currently focusing on ceramics and cement-based materials. The ceramics are expected to have an impact on the industrial side, while cement-based materials will be focused on construction applications. The development is in the later stage, and management expects to release at least one or both of them later this year. The company is also developing PMMA-based plastics, silicon carbide, tungsten carbide and wood powder materials.

Valuation looks more realistic now, although there is more room for downside

Although voxeljet has fallen more than all of its peers, its trailing and forward valuation is still higher than all of its peers. This might be justified, since voxeljet is delivering the highest revenue growth rates among its peer group in the last two quarters, and is expected to keep delivering revenue growth ahead of ExOne, 3D Systems and Stratasys. The strong selling pressure could continue to put pressure on 3D printing stocks going forward, but as I pointed out in my previous article about 3D Systems, 3D printing stocks might reach a sustainable bottom in the next couple of weeks/months. Investors should look at 3D Systems and Stratasys for clues about a potential bottom, and ExOne and voxeljet should follow suit. Another catalyst that might push voxeljet's share price lower is the lockup expiration, which is due on April 16.


Although shares of voxeljet are down 79% from all-time highs, there might be room for additional downside. Two factors might be important for the share price going forward: continued selling pressure in the 3D printing group and in the general market and lockup expiration, which is due on April 16. The two events should determine the bottom price for voxeljet, and I expect the stock to bottom in the next couple of weeks, depending on the overall sentiment in the 3D printing group and in the general market.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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