Desktop Metal (NYSE:DM) recently dropped 61% on the back of bad earnings. However, buyers stepping back in has brought the price up nearly 70% from the bottom of the drop. The price is now at $2.25. Will Desktop Metal reach $3.50’s again?

Desktop Metal

Desktop Metal is a public American technology company that designs and markets 3D printing systems. Headquartered in Burlington, Massachusetts, the company has raised $438 million in venture funding since its founding from investors such as Google Ventures, BMW, and Ford Motor Company.

Earnings

Despite the company releasing first quarter revenue way ahead of expectations, they also announced their earnings figures which fell the other side of wall streets estimates. Heading into the quarter, analysts had forecast that Desktop Metal would lose $0.13 per share on sales of $41.6M. In fact, the company lost $0.22 per share, despite sales coming in at $43.7M.

Desktop Metal grew sales 286% year over year and reaffirmed its guidance for the rest of this year, $260M in sales. None of this was enough to convince investors to forgive the earnings miss or the fact that even gross profit margin, which had held steadily in positive territory for the past three quarters, has now sunk back into the red (negative 3%).  

Desktop Metal also proceeded to announce that it will sell $150M worth of convertible senior notes at an interest rate yet to be determined.  

Technicals

Stepping past this unfavourable day in the company’s recent past, the stock has moved well since. The stock saw large volume on the day of earnings. But large volume also followed in the days after as the price moved back up. This gives an indication that buyers liked the stock at that price and believe it is too cheap. The price found some agreement around $2.

Chart provided by TradingView

Yesterday, though, the price closed above the ascending triangle that was forming, the highest close since the earnings drop. This is a good initial indication for the price to move back up. We will be looking out for some continuation of this move supported by increasing volume.

If the move continues, we think the price could target the closing price before earnings, around $3.50. This would provide an increase of 55%.

Overview

We think the current setup after an exaggerated dip has led to a nice buying opportunity. Buyers seem to be in control and the price could correct back up to pre-earnings levels. We will be watching out for the continuation of this move.

Please read our full disclaimers regarding the information published. The above is intended for informative purposes only and should not be taken as investment advice. Trading on leverage can result in losses larger than your initial deposit.

Leave a Reply