Shares of 3D printing pure-play Desktop Metal (NYSE:DM) stock have cratered over the past year. DM stock has shed over 85% of its value in the past 12 months. Lackluster results and continual delays in releasing its much-talked-about Production System P-50 have driven investor skepticism. Though elements fuel its long-term bull case, its lofty valuation makes it a stock to invest on the pull-back.

Desktop Metal is one of the up-and-coming enterprises in the emerging 3D printing business. It has made some exceptional strides in expanding its business, but none of these have translated into noteworthy top and bottom-line gains.

Consequently, its stock has been a flop since going public. Nevertheless, it still trades at over 11 time’s forward sales, despite the massive reduction in price.

Hence, it remains a stock to keep on the radar once it offers a more attractive entry point.

Dismal Third Quarter

Desktop Metal’s recent third-quarter results paint a sordid picture of the company’s operational capabilities. Though its revenues increased by 907% to $25.4 million from the prior-year quarter, the results were almost purely attributable to its acquisitions.

Despite the exceptional growth, it still wasn’t enough to beat Wall Street estimates of $27.1 million. There was no mention of the company’s organic revenue growth, which should concern investors.

Furthermore, the company’s operating loss of $63.6 million widened by 226% from the same period last year. Moreover, its adjusted net loss also widened 57% from the third quarter last year.

Additionally, its gross margins came in at just 16%, while adjusted gross margins were 27% for the quarter. These numbers trail sector averages and raise some major concerns about its path to profitability.

Moreover, it used $38 million in cash to run its operations, a significant bump from the $18.6 million used in the prior quarter. It ended the quarter with $423.9 million in its cash till, while its total debt stands at roughly $12.2 million.

The company has been ineffective in managing costs, which is why Desktop Metal’s profitability numbers have become a major cause for concern. As we advance, Desktop Metal has confirmed that it will close out the year, as an unprofitable entity, with a negative EBITDA of $80 million to $90 million.

Acquisition Spree

Desktop Metal is looking to expand its business at an aggressive pace, and in doing so, it has added several small companies to its fold. It recently acquired ExOne, a metal-focused 3D printing enterprise, which also uses binder-jetting technology.

Back in July last year, it acquired bio fabrication specialist Beacon Bio and Aerosint. Moreover, it also acquired Adaptive 3D, Phonograft technology, and EnvisionTec to expand its 3D printing capabilities further.

These additions will help aid Desktop’s plans to improve its process’s efficiency and bring it to scale. The company has an auspicious plan to grow its niche market. However, it also needs to let its business breathe and exercise fiscal discipline. If it can execute this approach effectively, it could grow impressively in the coming years.

Bottom Line 

Desktop Metal faces some major financial and operational headwinds. Its losses are mounting, which will continue to weaken its operational effectiveness as we advance. Supply chain issues picked up at the close of its third quarter and are likely to weigh down results in the upcoming quarter.

The reduced guidance will account for it, and I won’t be surprised if it comes at the low end. It needs to have a clearer vision for the future and exercise financial discipline to take its business to the next level.

However, as it stands, it is best to avoid DM stock.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.