For years, satirical late-night TV host Stephen Colbert has been running a series on his show called "Better Know a District," which highlights one of the 435 U.S. congressional districts and its representative. While I am no Stephen Colbert, I am brutally inquisitive when it comes to the 5,000-plus listed companies on the U.S. stock exchanges.
What ExOne does
ExOne is a manufacturer of three-dimensional printing machines and printing products around the globe. Customers can choose to either purchase its highly specialized 3-D printing machines or contract out ExOne for printing product services.
According to ExOne's preliminary prospectus, the company has generated $15.9 million in printing and service revenue through the first nine months of 2012, as compared with $12.6 million in the same period in 2011. ExOne's top five customers represent 42% of its total revenue, with 3-D printing machine purchases offering the biggest boost in its bottom line. ExOne had an accumulated deficit of $15.6 million at the end of 2011 and lost $10.7 million through the first nine months of 2012.
Whom it competes against
The two best-known competitors in 3-D printing, 3D Systems (NYSE:DDD) and Stratasys (NASDAQ:SSYS), have very little overlap with ExOne's target market, as my Foolish colleague Steve Heller described last week. ExOne's printers are geared for larger, industrial-sized products, whereas 3D Systems lacks the capability to produce large metal products and Stratasys doesn't even offer the ability to print with metal.
3D Systems continues to gear itself toward the consumer market, having made more than 30 acquisitions in just the past three years. Stratasys, through its acquisition of Objet, has focused itself on shortening the conceptualization phase for companies among multiple sectors, including industrials.
Perhaps ExOne's biggest competitor is its own customer base. The company counts automobile maker Ford (NYSE:F) and heavy-equipment maker Caterpillar (NYSE:CAT) among its top customers for its Max platform printer -- the largest and costliest 3-D printer it manufactures. While these are well-known names, they're also a global liability if global growth wanes, as it's done in recent months. Ford is struggling mightily in Europe, where austerity measures have drastically reduced the amount consumers have available to spend on a new car. Caterpillar, on the other hand, has seen sales of its manufacturing equipment slow in previously strong emerging markets such as China, while mining spending has fallen and it has cautioned that growth through 2015 could be challenging.
After carefully reviewing the prospects for ExOne, I've decided to place a CAPScall of underperform on the company.
As Steve Heller pointed out in his analysis, this one appears to be a pretty cut-and-dried case of overvaluation. ExOne sold only four 3-D printing machines in 2010, four in 2011, and just five through the first nine months of 2012. That's 13 machines in 11 quarters, ranging from $800,000 to $1.4 million. Clearly, its customers rely on ExOne for its printing services more so than its machines, which seem to take quite a long time to build and sell.
From a financial perspective, ExOne is valued at 16 times trailing sales, it probably won't be producing a profit any time soon, and it boasts a negative book value. Unless the global economy was to make an abrupt about-face, there's very little value in ExOne until it can demonstrate its ability to be profitable. With 3D Systems and Stratasys at least being profitable, I can, without a doubt, anoint ExOne the worst company in the sector.