XONE

XONE (3-D printers, strongly recommended by MF)

I’ve written previously about WPRT (Westport) at length. I think my real gripe though, is about companies that are losing great gobs of money, have little or no chance of even breaking even any time soon, and get recommended my MF, often with Buy Now’s after the initial recommendation. I happened across this note I had written on the XONE board on MF RB back on July 11, 2013, before the market opened. I had initially taken a little watch-and-see position and then sold out.

“…here are my remarks on why I’m not in XONE: I sold out because I thought it was rising to ridiculous levels for a company which has never made a profit, on hopes that it will be acquired, which didn’t seem like a safe reason to stay in it. I may be wrong. It has good technology. It may be acquired. They may make a large profit this year. But… they lost $28 on every $100 of revenue last year. It cost them $128 to make each $100 of revenue. That’s horrendous! It’s hard to see how that is going to turn around to a vastly profitable business quickly.

Think of it this way: Say their cost of goods sold is 50%. That means their $100 in sales has to go up $56 (or 56%) to $156 to use up that $28 in losses and even break even. But… to do 56% more business, their SG&A overhead will have to go up by… say 20%. And they may need more Capex to get more equipment and buildings to build more machines, and they’re still far from being back to zero, break-even.

I try to avoid companies that are going to break even “next year”. You guys may make a mint on it, and more power to you, but there are a lot safer companies in RB for me to put my money in…

I posted the following on the Tesla board in early June after the incredible run-up (to $105), when everyone on the board was saying they were waiting for a drop to $50 to $70 to buy in, or were selling to buy back $30 lower.

I hear lots of people who think TSLA price is way too high.

I hear no one say it’s too low.

I hear lots of people saying they expect an imminent correction to $50 or $70, and they’ll buy then.

I hear no one, NO ONE, saying they think the price will shoot up to $150 or $200 any time soon.

To me that doesn’t sound ANYTHING like a correction is coming. It’s almost classic. I’d be a lot more worried if everyone was sure the price was about to shoot up $50.

My bet is no correction, and a period of consolidation roughly between $89 and $110, before another leg up, depending on positive news (or rumors).

I hit it right. That is just what happened. On this board (XONE), it’s exactly the opposite. Everyone is euphoric, saying they are up 100% or 60% and are holding forever, or until RB says sell. Almost no one on this board is worried. To me that’s the sign of a top, the handwriting on the wall. No one here is listening.

XONE is priced for perfection. Any minor disappointment and you could see a crash like we saw two days ago in ISRG when it was down $95 intraday, and finished down $80 in a single day. That crash wasn’t because they preannounced a disaster. They just preannounced that revenues were “only” going to be up 5% for the quarter.”

As you can imagine, I wasn’t too popular on the XONE board. Well, what happened? XONE opened that day at $71.00. It’s now at $14.05.

XONE lost just over 80% of its value since I wrote that. It’s still a buy on MF.

The message is: Avoid companies that are losing gobs of money. No matter how good the story. Unless they are growing revenues like mad.

Best,

Saul

28 Likes

Here’s what I wrote the month before, in June 2013.

Frank, I’m just commenting about why a stock with negative earnings, that has never had a profitable year, would be selling at such a huge inflated price. Granted, some is about prospects for the future, and some is the 3D hype, but some must be hopes of the company being acquired. (The price took off after SSYS just acquired MBot).

Look, last year they lost $10.2 million on $28.7 million of revenue. That’s a negative margin of 35.5%. It means they lost 35 cents on every dollar of sales!!!

In the first quarter of this year.they lost 20 cents the first quarter in spite of great revenue. Say that by magic they overcome the loss in the next three quarters and finish the year with 25 cents profit. I’m not rejecting the possibility. With that miraculous result, they’d then be selling at over 200 times earnings. (220 times to be exact).

What can I say? I think the technology and the company have great futures, but the stock may be miles ahead of itself. Miles and miles and miles.

I may be totally wrong, and greatly underestimating, but it’s worth considering those figures.

1 Like

Thanks Saul. This makes sense and in some ways maybe shouldn’t need to be said.

The other point I think you have made in 3D printing is that most of the thesis is about the entire sector, not about a particular company. So why not find the cheapest company that is growing just as fast as everyone else?

1 Like

AMAVF (Arcam)

https://translate.google.com/translate?sl=de&tl=en&j…

this component of the engine XWB-97 comes from the 3D printer. It is a prototype. Rolls-Royce wants the printing technology used in the future but also in mass production.

Is printed, the element with a titanium alloy. The metal powder is melted in the 3D printer by an electron beam and wafer-thin stacked until the prototype is ready. Rolls-Royce calls this method also additives Layer Manufacturing (ALM). The ALM printer used come from the Swedish engineering company Arcam.
Just like Rolls-Royce also used by the largest American engine manufacturer General Electric (GE) reinforces the ALM Manufacturing Engineering.

Arcam is quite profitable with ever increasing sales. And despite the fact that the market lumps Arcam in with other 3DP companies, in fact there is not much in common except the layer technique. IMO Arcam is in the second inning of the metal 3DP game.

6 Likes