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Why ExOne Co. Stock has Crashed More Than 50% in 2014

Three-dimensional printing has been one of the most buzzworthy investing topics over the past two years. While the baseline technology has been around for 25 years -- 3D Systems'  (NYSE: DDD  ) 's stereolithography was first featured on Good Morning America in 1989 -- it's only been in recent years that materials have caught up with the potential. The hype machine really ramped up in 2012, and 3D Systems and Stratasys  (NASDAQ: SSYS  ) saw their stock prices respectively climb an insane 807% and 330% from January 2012 to December 2013. ExOne's  (NASDAQ: XONE  )  stock was caught up in the momentum as well, with shares topping out above $71 -- a crazy 175% gain -- within six months of the company's IPO in early 2013. 

That brings us to today, with the market largely having turned negative on the bulk of the 3D printing segment this year:

XONE Chart

XONE data by YCharts.

Let's look at what has driven these stocks down -- especially ExOne -- and talk about the prospects for the future. 

Caught up in the hype, but also missing projections 
This is the first part of ExOne's story, as well as that of its industry peers. The 3D printing industry is growing at an enormous rate: 3D Systems' revenue has grown more than 50% in the past 18 months, while Stratasys' has increased a whopping 128%, as both companies have used acquisitions to build on existing capabilities and expand into new markets. ExOne, however, has only seen its trailing revenue increase about 20% over the same time period:

XONE Revenue (TTM) Chart

XONE Revenue (TTM) data by YCharts.

Needless to say, the market hasn't responded favorably, especially when we add in the fact that ExOne has consistently missed analyst estimates since going public. The trend continued in the quarter just reported a couple weeks ago, with both earnings and revenue coming up short. 

What about the future for ExOne? 
Compared to 3D Systems and Stratasys, ExOne is a very different -- very focused -- company. While 3D Systems and Stratasys expand into wider markets for consumer and industrial 3D printing, ExOne has remained focused on industrial printers that print in metals and can produce sand castings for making metal components. ExOne's printers today can print tungsten, iron, and stainless steel.

ExOne produced this compressor part for the U.S. Navy 40% cheaper and 10 months faster than traditional methods. Source: ExOne.

Furthermore, the company is investing heavily in developing aluminum, titanium, magnesium, and other lightweight, high-strength metals for use in its printers that have applications in areas such as aerospace and marine environments. The parts made from these materials can often be quite unique and complex, not to mention very expensive; using 3D printing reduces the amount of material used per part, and it can also allow for improved designs that often can't be cast or forged. 

Here's the catch: ExOne's printers can easily cost up to $1 million or more, meaning that any potential customer needs to be absolutely sure that the system will work well before investing the capital and human resources to integrate it into the work environment.

ExOne produced this part for Ulterra at half the cost and double the durability. Source: ExOne

ExOne has come up with a great way to demonstrate the amazing capability of its printers and also generate revenue at the same time, via its ExCast strategy of working with clients on the design and production process of additive manufacturing. This process combines with its seven production service centers, or "PSCs," where ExOne prints components and sand casts, which it sells to the customers. 

Source: ExOne presentation.

To date, every customer that has bought an ExOne printer has used the PSC process as part of the proof of concept, and ExOne has quickly focused on expanding this capability. Not only does the PSC process lead to machine sales, it's a significant contributor of nonmachine revenue, as shown in the pie chart to the left.

Over time, this balance may begin to shift toward machines, but a major part of ExOne's long-term strategy is the sale of finished parts, sand castings used by traditional foundries, and raw materials its customers will use in their printers.

An innovator with huge potential, but it's going to be a bumpy ride 
From a business perspective, ExOne is a real leader in innovation and development of advanced metals printing. The stock's extreme volatility is largely a reflection of how much potential exists -- and the market's speculation on that -- and not the quality (or lack thereof) of the business. 

Making an investment in ExOne is probably best suited as a long-term play. Because the company's machine sales volume is so low -- and the machines are so expensive -- one or two missed (or extra) machines sold every quarter can make a huge difference in the results. This leads to a lot of volatility that is largely unrelated to the company's actual prospects.

If you do invest in this company, stay focused on the business performance over time, and not the stock price movement. 

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Jason Hall

Born and raised in the Deep South of Georgia, Jason now calls Southern California home. A Fool since 2006, he began contributing to in 2012. Trying to invest better? Like learning about companies with great (or really bad) stories? Jason can usually be found there, cutting through the noise and trying to get to the heart of the story.

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Related Tickers

8/31/2015 4:00 PM
DDD $13.73 Up +0.25 +1.85%
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ExOne CAPS Rating: ***