Seeking Alpha
Long/short equity, value, growth, momentum
Profile| Send Message|
( followers)  

Summary

  • Voxeljet is seeing robust order inflow, and it is subsequently expanding its capacity to address future demand.
  • Voxeljet is making aggressive investments in research and development to tap a growing industrial 3D printing market.
  • Voxeljet has a strong financial position, and its bottom line is projected to grow at an impressive rate going forward.

It has been a bad year for companies in the 3D printing industry. The likes of 3D Systems (NYSE:DDD) and ExOne (NASDAQ:XONE) have taken a massive beating so far in 2014, and Voxeljet (NYSE:VJET) is no different. So far this year, Voxeljet has lost more than half of its market capitalization, and its stock fell further after the company posted a wider-than-expected loss in the second quarter.

In addition, Voxeljet's revenue came is slightly behind analysts' expectations, just like its bottom line performance. In fact, Voxeljet reported a second-quarter loss of $0.32 per share, missing the consensus estimate of a $0.14 loss by a wide margin.

Strong order inflow and capacity expansion

However, the positive side is that the company did post an impressive increase of 31% in revenue. The company's top line was driven by an increase in coating and sales activity. The company is already seeing good demand for plastics, PMMA, and sand parts. In addition, Voxeljet has an impressive product backlog to show for. Voxeljet's total backlog for its 3D printer orders as of June 30, 2014, was kEUR 4,278, representing eight 3D printers. This is way better than the backlog of kEUR 2,300, depicting four 3D printers, as of December 31, 2013.

Since Voxeljet serves the industrial and commercial 3D printing markets, there is a possibility that it will be able to sustain its rate of revenue growth going forward. To tap the fast-growing industrial 3D printing market, Voxeljet is making investments to grow the business. This was one of the reasons behind its weak bottom line performance in the previous quarter. The company saw higher segment headcount costs in order to execute its growth strategy by hiring extra employees.

In addition, Voxeljet completed the expansion of its service center to a 40,000 square feet facility, which is double the size of the previous facility. At present, management is operating 10 3D printers for services that include two VX4000 units, the largest 3D printers in the industry.

Voxeljet is progressing on increasing its printing capacity in Germany by nearly 50% this year as compared to the prior year. The company expects these investments to start delivering from the second half of the year.

The company already has a big facility in the U.S. near Detroit, which is spread across nearly 50,000 square feet. This facility will be able to support four large format printers, two plastic printers, and two sand printers by the end of 2014. Moreover, management expects to utilize on-demand parts by September end or by the beginning of October. The facility is expected to have about 30% of the printing capacity of the German service center, given the fact that four printers are operating and it expects to ramp up the capacity by the end of 2016.

Strategies to tap a strong end market

These are good moves by Voxeljet, as demand for industrial 3D printing is expected to grow at a good pace in the future as the technology is used for more applications. According to TechCrunch:

"Gartner noted that current enterprise uses of 3D technology focus on "one-off or small-run models for product design and industrial prototyping, jigs and fixtures used in manufacturing processes and mass customisation of finished goods." But as advances in 3D printers, scanners, design tools and materials reduce the cost and complexity of creating 3D printed items, it said applications of 3D printing technology will expand further - drawing in other areas such as "architecture, defense, medical products and jewellery design."

To tap this market, Voxeljet has three key strategic drivers to drive its long-term growth. First, the company aims to set-up several large scale service centers across the globe. The company is already making efforts in this area, are seen by the initiative to open its first U.S. facility in the third quarter. In addition, it has identified other new markets and geographies for building facilities in the near term.

Second, Voxeljet is focused on innovation and technology advancements with the help of research and development initiatives. At present, the company is developing a range of casting materials, ceramics, plastics, and materials developed from cement and wood powder. Hence, it was not surprising to see that Voxeljet's research and development expenses increased almost 70% year over year in the previous quarter.

Finally, the last driver on which Voxeljet is focusing is the development of its sales and marketing presence. This will allow the company to increase its market penetration, and it has already made moves in this area by hiring more employees as discussed above.

Strong financial position will drive growth

Voxeljet's balance sheet is in good shape, and this will allow the company to continue investing in its growth going forward. It has cash of almost $76 million, while the debt is minimal at just $5 million. In addition, Voxeljet has a current ratio of 13.18, which signifies strong liquidity. A low debt and a strong current ratio means low interest expenses and high liquidity, and gives Voxeljet the flexibility to tap the debt markets to fuel its growth prospects if needed.

Moreover, Voxeljet's bottom line is projected to grow at a rate of 29% this fiscal year and almost 59% in the next fiscal year. These estimates indicate that the company will grow at a greater pace going forward. Finally, considering the prospects of the industrial 3D printing market, Voxeljet's strategies and the fact that it has dropped strongly this year, it might be a wise idea for investors to consider buying some shares since the company can deliver growth in the long run.

Source: Why A Beaten Down Voxeljet Might Be A Good Long-Term Investment