Nano Dimension Ltd. (NNDM) is currently attempting to take over Stratasys Ltd. (SSYS), both of which are Israeli-based companies operating in the 3D printing industry. However, both companies have experienced a decline in their share prices over the past five years. According to the Seeking Alpha Quant Rating, Stratasys is rated as a Sell, while Nano Dimension is rated as a Hold. Seeking Alpha warns investors that Stratasys is at high risk of underperforming. Therefore, we do not consider either company to be a suitable investment opportunity for retail value investors at this time, despite their growing revenue.
There is a risk for Stratasys investors that Nano Dimension is committed to pursuing a buyout of the company. Nano Dimension has made several unsolicited cash proposals to buy out the remaining ~85% of outstanding shares it does not yet own. These offers range from $16.50 per share to $25 per share, which is higher than the current selling price. However, Stratasys has implemented a shareholder rights plan, known as a poison pill, to prevent a hostile takeover.
Stratasys has been resistant to Nano Dimension’s proposals, and it seems that more time will pass and both companies will incur more expenses as Stratasys looks for ways to fend off further proposals or demand more from Nano Dimension. Stratasys has generated more revenue in previous years than in recent years, with an average of $675 million between 2015 and 2018. However, the share price has declined after rejecting previous offers, partly due to the impact of the Israel invasion and the Hamas massacre, which caused Israeli-based stocks trading on U.S. exchanges to decrease by 15% to 20%.
Despite the financial conditions, short interest in Stratasys is only 2%, indicating hopes for a potential buyout. Hedge fund interest in the company has also increased as Nano Dimension presented new proposals. However, Cathy Wood’s fund owns a significant number of Stratasys shares and is currently experiencing a -37% loss. This raises the possibility that her fund may sell off the shares, driving down the share price, or hold onto them in anticipation of a higher offer from Nano Dimension. However, retail investors should approach this situation with caution, as it is a speculative gamble.
The 3D printing industry has been growing since around 2013, with applications expanding into various sectors. Nano Dimension specializes in hardware, offering 3D printers and proprietary conductive and dielectric substances. They focus on electronics robotics and control systems, along with providing software and services. Stratasys, on the other hand, offers high-tech printers, printing systems software and services, and consumable materials for 3D printing.
Nano Dimension’s revenue has consistently grown through acquisitions and some organic growth. However, it is essential for management to determine what resources Nano can bring to Stratasys in the merger. Nano Dimension has made significant acquisitions in the past five years and currently has a substantial amount of cash and equivalents on hand. However, expenses and losses have eaten into this amount in previous years. Debt is relatively low, and the company’s overall financial outlook appears healthy.
While revenue is increasing, Nano Dimension’s management needs to focus on improving earnings and net income. The company is currently undergoing a reshaping process, including board changes, a goal to raise gross margin to 50%, share repurchases, and further cost-cutting measures. Valuation metrics for Nano Dimension do not hold much influence over the share price, with a price-to-sales ratio of 10.39 and a price-to-book ratio of 0.66.
In conclusion, we believe that the 3D printing industry will continue to grow significantly. However, there are uncertainties surrounding the potential takeover of Stratasys by Nano Dimension. Retail investors should approach this situation with caution, considering the risks involved and the speculative nature of the investment.
Source link
