For investors fascinated by disruptive technologies, 3D printing stocks are the companies to watch right now. And for the past few months, 3D Systems, Stratasys, and newcomer ExOne (NASDAQ:XONE) have tended to mirror each other's market movements; when one goes up, the others tend to as well. That's why it seems jarring that ExOne has taken a significant tumble recently, seeing shares slip by 42% since August. What could be behind the drop?
The higher the high...
When ExOne took to the Street with an IPO in February, its stock was selling at $18 a share. Anyone who got in at that time has already seen some nice returns, with ExOne stock peaking at $75.67 on Aug. 13. Since then, though, the 3D printer maker has seen its stock price dip to $43.70 a share. The drop in price has been largely pinned on the company's secondary stock offering in September, where it sold 3 million shares of common stock for $62 a share -- a total sale of around $189 million.
Why is this bad? Because just barely seven months after ExOne's initial public offering, many of those shares were sold by ExOne executives -- including CEO S. Kent Rockwell -- who are ordinarily expected to hold on to what they have out of dedication to their company.
Instead, Rockwell's holding companies made approximately $86.3 million from selling shares, while ExOne president David Burns and CFO John Irvin each sold 60,000 of their own shares, at an estimated worth of $3.34 million each. For reference, ExOne only brought in $28.6 million in revenue in 2012. To make more money from selling stock than your company made in sales during an entire year should come as a big fat red flag for any Foolish investor.
Another important factoid to consider about ExOne's epic exec sell-off is its timing. The lock-up period -- the stretch of time post-IPO where executives are forbidden to sell stock -- expired on Aug. 30 , just weeks before the executives' Sept. 13 stock sales. For Rockwell and others to jump ship so soon after the end of this customary period suggests that they might believe the company's stock to be overvalued.
Would they be right? ExOne has had several years of negative net income, which makes its current P/E inapplicable. However, Morningstar has used forecasted earnings stats about ExOne to get a forward P/E of 115.4, while Stratasys and 3D Systems clock in at a mere 40.1 and 38.5, respectively. Taking these calculations into consideration, ExOne appears monstrously overvalued compared to its peers. That could be one reason behind its recent insider share sales.
This ain't your grandma's 3D printing company
3D printing technology's potential to transform manufacturing comes a healthy dose of volatility. Just like a rollercoaster, these stocks are sure to have many unexpected dips, twists, and peaks in the future, which could explain why investors want to get on board.
But ExOne executives' attempts to squeeze out more money through stock sales than their company is currently capable of generating right now is troubling. That kind of action makes it seem like they have their individual interests more at heart than the company's.
Granted, the executives in question do still own shares of the company -- just a significantly smaller chunk. Rockwell's 1.55 million sold shares represented 31.4% of the 4.9 million he originally owned, while David Burns and John Irvin sold 18.8% and 18.9% of their respective shares.
However, even if they still have a stake in the game, if ExOne's insiders are engaging in trading activity this soon after an IPO, there's no telling what they could do if the company actually begins raking in the money that its ambitious valuations predict. For that reason, would-be 3D printing investors may want to regard this particular company with considerable caution.
Fool contributor Caroline Bennett has no position in any stocks mentioned. The Motley Fool recommends 3D Systems, ExOne, and Stratasys. The Motley Fool owns shares of 3D Systems, ExOne, and Stratasys and has the following options: short January 2014 $36 calls on 3D Systems and short January 2014 $20 puts on 3D Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.