I recently wrote an article calling 3D printing stock ExOne (XONE, Financial) overvalued. Despite the absence of any positive news, ExOne’s stock had rallied considerably in the last few weeks, and investors should benefit from it.
It has been less than 20 days since my article was published, and ExOne’s overvaluation was confirmed by the company’s management as it authorized FBR and MLV to offer and sell up to $50 million worth of shares in the future, via at-the-market offerings. This increased ExOne’s share count by 40% and proved to be disastrous for the stock as it lost almost 12% of its value following the announcement.
Consequently, my short call has resulted in a 30% profit in less than 20 days. While investors may be looking to book profits at the current levels, ExOne still has more room to fall, and it’s still a short. Investors who missed out on the recent selloff can still consider shorting the stock; it has about 20% more downside to offer.
Terrible management
ExOne’s execution has been terrible, and all the blame can be put on the company’s management. ExOne has always missed analysts’ estimates since going public, and this highlights the flaws of the company’s management.
To make matters worse, ExOne has never reported a positive EPS as well, and the company has been losing money at a very fast pace. Before the secondary offering, ExOne had $20.3 million in cash and $2 million in debt.
So by authorizing the secondary offering, ExOne is only buying more time as the company is likely to continue losing money. The entire 3D printing sector is slowing down as sales are falling across the entire segment. However, ExOne is the only stock that is still worth shorting. The company will never become profitable under the current management.
The company’s business model is unsustainable in the long term; while it has managed to buy some time by diluting shares, it is only a matter of time before the company runs out of cash again. Given these massive headwinds, investors can still short ExOne.
Conclusion
ExOne’s terrible management and an unsustainable business model make it a great short despite the recent selloff. The fall of the 3D printing sector along with ExOne’s history of losses make it an ideal short candidate at current prices. Investors can still short the stock.
