ExOne's (NASDAQ:XONE) stock performance has been downright horrible in 2014, down 74% and underperforming the S&P 500 by over 88%. A big question for investors is whether Mr. Market's unfavorable treatment of this 3D printing stock offers a favorable buying opportunity for patient, long-term investors. After all, the stock is trading about a dollar below its IPO offering price of $18 per share, a price that would have been considered a bargain in 2013.
The source of pain
Throughout the year, ExOne experienced a series of shipment delays at customers' request, which consequently pushed recognizing the corresponding revenue beyond the intended quarter. ExOne only ships a handful of high-dollar units, ranging from the six-to-seven-figure range, in a given quarter, meaning a shipment delay or two can easily make or break a given quarter. Given the drawn-out nature of its sales cycle, which can last anywhere from six months to two years, management said during its third-quarter earnings call it would prefer to be judged on its full-year operating performance over quarterly results.
The other major pain point for ExOne in 2014 was the ongoing transition of its sales focus toward targeting metal foundry customers, instead of the foundries themselves. The company found that foundries have been reluctant to adopt its 3D printing technology, which can produce sand-casting molds without tooling, essentially disrupting the metal foundry industry's proprietary, and more costly, methods of creating sand-casted molds. The hope is that this transition will help the company reach a larger customer base in the long run, as it targets end users over the foundries that serve them.
Reasons to buy
Investors could think of ExOne as a niche 3D printing company, targeting large-scale industrial 3D printing applications by products and services that print directly in metals or indirectly print sand molds, which become metal-casted objects. ExOne's primary competition in the market is Germany-based voxeljet, but the two companies only overlap on the indirect, sand-casting side of the business. In other words, ExOne has the potential to establish itself as a leading player in the large-scale industrial segment with less competitive pressures than Stratasys and 3D Systems face.
On the technological front, ExOne's patented binder jetting technology is uniquely suited to handle a range of materials that aren't well suited for prevailing selective laser sintering 3D printers. In the last 12 to 18 months, ExOne has tested no fewer than 25 new material candidates for binder jetting, including carbon, graphite, and ceramic, which appear to be well suited for the aerospace and oil and gas industries. If ExOne can successfully introduce new materials that aren't compatible with competing 3D printing technologies such as selective laser sintering, but are still sought by customers, the company could have a durable advantage in certain areas.
Beyond ExOne's business model and technology, its management team remains committed to operating within its circle of competence, giving investors the peace of mind that the company won't make undisciplined decisions that detract from its primary focus.
Reasons to avoid
With an average sales cycle between six months and two years, and an over $1 million price tag for its flagship 3D printer, it's clearly not easy to sell ExOne's specialized 3D printers. Throw in the possibility that ExOne's 3D printers could be too specialized to capture a sufficiently broad market share to be meaningful for investors, and the company's choppy revenue stream could plague its business for years to come.
In terms of adoption, ExOne's binder jetting technology is still relatively unaccepted compared to selective laser sintering. Acceptance is the first step in driving adoption, and ExOne's growth could stall if it can't show the value of its technology to prospective customers over other systems.
Be greedy when others are fearful?
To put it simply, ExOne's has not lived up to Wall Street expectations in 2014, which is apparently a big deal for an unproven emerging-growth company. The upshot is that ExOne's underlying business does not appear to be deteriorating, based on management's recent comments, despite what the collapse in its stock price seems to indicate. In the end, investing is more about where a business is going than where its stock has been. As long as you are patient and willing to ride out the inevitable ups and downs, I think ExOne still offers a reason for prospective investors to get excited.
Steve Heller owns shares of 3D Systems and ExOne. The Motley Fool recommends 3D Systems, Apple, ExOne, and Stratasys. The Motley Fool owns shares of 3D Systems, Apple, ExOne, and Stratasys. 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.