ExOne: You Were Warned

Aug.14.14 | About: ExOne (XONE)

Summary

ExOne reports another disappointing quarter.

Guidance for 50% revenue growth in 2014 should be tossed aside.

Valuation remains stretched.

Back in August last year when ExOne (NASDAQ:XONE) traded at around $66, our research titled "Market Continues To Deny The ExOne Flaws" warned investors that the 3D printing hype had gotten the best of this stock.

At the time, the maker of industrial 3D printers had traded with a valuation around $1 billion while only reporting quarterly revenue of $9.2 million for Q213. Even with a third straight earnings miss, the stock held up well until the end of August that year. With another warning for Q214 is the stock still too high at $28?

Q214 Results

If it weren't for the valuation and high expectations of the stock coming out of the IPO back in early 2013, the results wouldn't be that bad. The company provided the following highlights for Q214:

  • 3D printed products, materials and services revenue was up 53% to $5.2 million.
  • 3D printing revenue was $6.0 million, up only slightly over the $5.8 million in Q2 last year.
  • Gross margins sank to 22.3% in the quarter, compared to 45.3% in Q213.
  • Reaffirmed expectations of 40% to 50% revenue growth for 2014.

The Q214 numbers were horrendous considering the revenue miss with expectations of revenue over $12 million. The company and the sector valuations aren't set up for revenue only growing 22% year-over-year so the revenue miss led to a substantial loss of $4.7 million, or $0.32 per share. The loss per share was significantly above the expectations for a loss of only $0.14. As per the history numbers listed in the sector below, investors should've expected this quarterly disappointment.

The company is reaffirming guidance for revenue growth of up to 50% for the year. Considering total revenue only reached $18.5 million in the 1H14 and the guidance is for revenue reaching $55 to $60 million, one has to wonder what management is thinking by maintaining these high numbers. In essence, ExOne has to average nearly double the revenue achieved in Q2, or roughly $21 million per quarter in order to reach that guidance.

History Of Misses

It's amazing how a year has passed, yet nothing has changed with ExOne missing estimates. The company had just missed earnings estimates for the third consecutive time since going public when the last article was written on this stock. Nothing has changed other than the stock price is much lower following yet again another warning. By my account, ExOne has missed earnings estimates all seven times since going public.

Click to enlarge

Source: Yahoo Finance

The incredible part about ExOne is despite the non-stop earnings misses, the stock still trades at similar valuation multiples of the leading 3D printing stocks of 3D Systems (DDD) and Stratasys (SSYS). One would think the requirement to own a consistently disappointing stock would require lower multiples, but the below chart highlights that isn't the case:

XONE PS Ratio (Forward) Chart

XONE PS Ratio (Forward) data by YCharts

Conclusion

Even though ExOne investors were warned last year to avoid a stock trading at extremely high multiples while missing numbers, the stock is actually still highly valued after four more warnings. The guidance shouldn't be believed until the company actually exceeds forecasts for a couple of quarters.

At this point, investors interested in the 3D printing space should own the better run Stratasys and avoid ExOne at all costs. ExOne should trade at a multiple half that of the sector leaders or somewhere around $14 to make the stock interesting. Investors have been warned yet again.

Disclosure: The author has no positions in any stocks mentioned, but may initiate a short position in XONE over the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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.