You know that golfing buddy that shanks his drive into the woods, only to nonchalantly re-tee another Pro V1 right before your eyes? Effortlessly, he hits his mulligan–possibly in the woods again, or perhaps down the middle of the fairway. But you don’t think anything of the do-over. In the grand scheme of things, does it really matter? One mulligan couldn’t cost you too much when it’s time to pay up….could it?
3D printer manufacturer ExOne Co (NASDAQ:XONE) is that golfing buddy. The company recently missed revenue expectations by 16%, and whiffed on earnings by 82%. Shares were crushed, down over 20% after the release. But since then, the market has given ExOne Co (NASDAQ:XONE) a mulligan. Shares have bounced back, and recently hit a new 52-week high. Not bad for a company that sold exactly 5 printers in the quarter. So why the mulligan?
Investment demand outpaces supply
The 3D printing, or additive manufacturing, industry is the talk of Wall Street and, increasingly, Main Street. As discussed here, ExOne is the best pure-play 3D printing company focused solely on corporate customers, and not consumers. ExOne Co (NASDAQ:XONE)’s market position in the explosive 3D printing industry, along with an outstanding management team, gives it the potential for a very bright future.
With limited options for 3D printing investments, investors wanting industry exposure are forced to choose between ExOne, 3D Systems Corporation (NYSE:DDD) and Stratasys, Ltd. (NASDAQ:SSYS). Since these three stocks make up the mainstream choices for industry investment, and simple supply and demand is working in the favor of all three companies. The rising tide of industry sentiment is lifting all boats.
Currently there are no planned IPO’s, so the number of public 3D companies is likely to remain constant. In fact, 3D Systems Corporation (NYSE:DDD) and Stratasys, Ltd. (NASDAQ:SSYS) are aggressively acquiring competitors, keeping new participants from the public market. 3D Systems seems to acquire a new company each quarter, and is the current market leader in revenue terms–for now. Stratasys, Ltd. (NASDAQ:SSYS)’ 2012 merger with Objet created a viable competitor. As both 3D Systems Corporation (NYSE:DDD) and Stratasys are able to issue stock as currency with minimal investor backlash, look for continued acquisitions in the industry and few 3D investing alternatives.
There simply aren’t enough additive manufacturing companies to invest in, and investors refuse to let one bad quarter blind the bright future of the industry. So limited supply of investing choices in this hot industry is one reason ExOne Co (NASDAQ:XONE) was handed a mulligan.
One printer short
The average sale price of a Stratasys or 3D Systems machine is in the thousands of dollars. These two companies put more emphasis on consumer-based sales, which mix at a lower unit rate per machine. ExOne machines sold for a whopping $1.6 million apiece in the first quarter. So the 5 machines that ExOne Co (NASDAQ:XONE) sold in the quarter amount to $7.9 million in revenue. However, Wall Street analysts expected $9.2 million, which means that ExOne was one printer short of beating expectations.
Nobody expected ExOne to miss the quarterly revenue estimates. Shares were punished and the company lost $100 million of enterprise value. But the selling was too extreme when investors did the math and realized that ExOne Co (NASDAQ:XONE)’s shortfall was due to one printer not being sold.
One printer. In a 90 day period. In Europe. There are dozens of reasons why this machine would not have been sold. Sounds like a good reason for a mulligan given ExOne’s bright prospects.
Defining the competition
ExOne’s recent conference call and investor relations push have helped investors understand more about the company and industry. According to CEO Kent Rockwell, ExOne will not only focus on printer sales to large manufacturers, but will also manufacture complex prototypes for smaller customers. Rockwell’s target of 50% of sales from direct product printing is a way for ExOne to establish recurring revenue.
Rockwell has taken the opportunity to formally identify ExOne Co (NASDAQ:XONE)’s direct competition, and investors may be surprised to find that Stratasys and 3D Systems are not on the list. In fact, Rockwell says that ExOne’s “primary competition is the traditional subtractive” manufacturers that have existed for years.
So it seems that all three public 3D companies can coexist, as they do not directly compete with one another. Unlike a competitive dot-com type race to the top, in which only one company (Amazon.com, Inc. (NASDAQ:AMZN)) survives, investors should own one or all stocks as speculative plays on the technology. This understanding of the competition is a relief to investors, and gives investors more reason to pile into shares of all three companies.
Conclusion
Seeing is believing. Investors have seen ExOne management at work, and they believe that the quarterly miss is a minor detail when looking at the big picture. The additive manufacturing industry has enormous potential. There are few public participants in the marketplace, and there look to be no more joining the party soon. And the three public companies don’t even compete directly with one another. All good reasons to give ExOne Co (NASDAQ:XONE) a mulligan and invest in 3D technology.
The article ExOne Gets a Mulligan originally appeared on Fool.com and is written by Spencer Houlihan.
Spencer Houlihan has a long position in ExOne. The Motley Fool recommends 3D Systems, Stratasys, and The ExOne Company. The Motley Fool owns shares of 3D Systems and Stratasys and has the following options: Short Jan 2014 $36 Calls on 3D Systems and Short Jan 2014 $20 Puts on 3D Systems. Spencer is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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