Desktop Metal Inc

Desktop Metal Inc (NYSE: DM) develops additive manufacturing technologies for end-use parts. It also manufactures 3D printers for carbon fiber and metal printing.

Investment Rationale – SPECULATIVE BUY at USD 12.86

• DM accelerated customer adoption since more customers were added in Q1 FY21 than the entire FY20.
• As end-users are shifting from prototyping to volume production, the additive manufacturing industry is likely to grow 11 times over the next decade.
• DM is adopting a 2.0 growth strategy to achieve economies of scale with distribution in over 65 countries through vertical integration to lower parts costs and develop next-generation products.
• From a technical standpoint, the stock price is hovering close to a lower standard deviation. Meanwhile, 14-day RSI (44.83) also indicates an oversold signal.
• In the last two years. DM’s stock price has outperformed the NYSE Composite index by delivering approximately 32.44% return.

Risk Assessments

• The additive manufacturing industry faces the risk of rapid technological change with evolving customer demands.
• As an early-stage entity with a history of losses, DM has financed its operations by selling preferred stocks or business combination to date. Its growth trajectory depends on its ability to raise additional funds timely.
• The new strain of the Covid-19 pandemic can impact its future developments and the expected synergies from the acquisitions might not be achieved.

Recent News

Product Launch: On 10 June 2021, DM announced Flexcera (Next Generation 3D Printed Dentures) has received CE Mark Certification, and thus, the Company launched it internationally to meet the need of dental professionals globally.

Financial Highlights for the quarterly period ended 31 March 2021 (as on 17 May 2021)

 (Source: Company Website)

• During Q1 FY21, DM’s revenue soared 234% from Q1 FY20 and jumped 35% from Q4 FY20.
• The Company also strengthened gross margins as non-GAAP gross profit surged US$3.3 million from Q1 FY20.
• By the end of Q1 FY21, the Company reported a robust liquidity position of US$572.2 million in cash, cash equivalents and short-term investments.
• In terms of operational achievements, the Company launched Flexcera (product line for dental applications) and acquired Adaptive3D (entity holding a leading position in rubber materials and printable elastomers).

Share Price Chart    

 (Analysis done by Kalkine Group)

Valuation Methodology: EV/Sales Approach (FY21) (Illustrative) 

Conclusion

Desktop Metal has demonstrated remarkable growth in revenue during Q1 FY21, and even strengthened gross margins. It has grown its employee count to over 470 people from merely 180 people in May 2020. The Company has been able to maintain a robust liquidity position even post completing the redemption of all its outstanding warrants. In terms of guidance, FY21 revenue is expected to be over US$100 million, while adjusted EBITDA loss is likely to be in between US$60 to US$70 million. The stock made a 52 week High and Low of USD 34.94 and USD 9.98, respectively. On the technical chart, the next important support level is at USD 10.55.

Based on the large addressable market, industry-leading solutions, global distribution capabilities, compelling economies, inorganic growth potential, with support from valuation conducted above, we have given a “SPECULATIVE BUY” stance on Desktop Metal Inc at the closing price of USD 12.86 (as on 10 June 2021), with a lower double-digit upside potential based 38.37x EV/Sales (approx.) on FY21E Sales (approx.).

Diffusion Pharmaceuticals Inc

Diffusion Pharmaceuticals Inc (NASDAQ: DFFN) is a Biopharmaceutical Company that is focused on developing a treatment for acute shortage of oxygen in tissue, hypoxia.   

Investment Highlights – SPECULATIVE BUY at USD 0.7862

• DFFN has no earnings but no debt as well. It has a good cash position following the recent public offering to prepare itself for next development steps.
• It has completed the Phase 1b safety and tolerability study in Covid-19 patients, and the top-line data reflected no dose-limiting toxicities.
• It has also planned three more clinical studies (transcutaneous oxygen monitoring, induced hypoxia study, and lung diffusion study) to examine TSC effect on oxygenation.
• From a technical standpoint, 20-day EMA (USD 0.73) indicates a bullish momentum in the stock.

Key Risks

• The operational and economic uncertainties can delay its clinical trials and its ability to generate future revenue.
• The growth trajectory depends on the pipeline of product candidates, which could fail to be marketable products.
• There is a liquidity risk as the Company has been incurring losses since its inception.

Recent News

Phase 1b Study Update: On 10 May 2021, DFFN evaluated trans sodium crocetinate (TSC) in hospitalized COVID-19 patients and unveiled encouraging results.

Q1 FY21 Financial Highlights (for three months ended 31 March 2021, as of 10 May 2021)

 (Source: Company website)

• During Q1 FY21, DFFN did not generate any revenue from product sales, and funded operations from external sources.
• It incurred US$4.6 million of net loss in Q1 FY21.
• As of 31 March 2021, DFFN reported cash and cash equivalents of US$46.6 million. The Company intend to leverage this liquidity for advancing the research and development of TSC.
• In February 2021, DFFN enhanced its financial stability by raising US$34.5M gross proceeds through an equity public offering.

Share Price Chart

   (Analysis done by Kalkine Group)

Conclusion

DFFN demonstrated progressive development of its novel oxygen enhancing therapeutic, TSC. It also fortified its liquidity with equity raise in February 2021. During the first quarter, losses got worsened; however, it was largely driven by higher operating expenses and R&D expenses. The near-term clinical studies shall be funded by the cash in hand, positive results of which can act upon as growth catalysts. The stock made a 52-week High and Low of USD 1.85 and USD 0.595, respectively. On the technical chart, the next important support level is at USD 0.6447.

Based on the enhanced financial stability, completed Covid-19 safety study, and planned clinical studies, we have given a "SPECULATIVE BUY" stance on Diffusion Pharmaceuticals Inc at the closing market price of USD 0.7862 (as of 10 June 2021).  

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).