Shield Yourself With a Bloated-Pig




My first article published on TheStreet.com

To be successful in the market you need to hold both bullish and bearish positions.  While the market does trend upwards in the long-term, it is riddled with valleys.  Holding only bullish positions means that you will not profit during these valleys.

 

The market is reaching new highs as you read this article.  The Dow has broken 17,000; the S&P 500 is nearly at 2,000; and the NASDAQ is toying with its all-time high of 4,572 made during the Great Speculation of the dot-com boom.

 

The market is booming so now is the time to buy stocks, right? 

 

Wrong.

 

While the average investor is irrationally buying stocks to ridiculously high valuations, the insightful investor should be hedging his/her portfolio with bearish positions in overvalued companies to prepare for a market correction.

 

Today I am shining the spotlight on Voxeljet AG (VJET), a 3D printer manufacturer headquartered in Friedberg, Germany.

 

Three dimensional printing has been all over the news lately.   People are dreaming of an utopian society where everything is made at home from 3D printers.

 

Technology is not quite there yet.

 

3D printing technology was first introduced in the 1980s and resembled more of an assembly-line rather than the printing process of today.  Since then, every few years a 3D printing news story goes viral and people begin speculating of the technological potential. This speculation drives 3D printing stocks to ridiculous market valuations. 

 

After the hype dies down and people realize that 3D printing is not the revolution they had dreamed of, stock prices take a plunge downward.  The profiteers are those that were able to see through the speculation and took bearish positions in these stocks.

 

Voxeljet’s best year in recent history was in 2012 when they booked a $280k net gain.  This may work well for a recently bankrupt Crumbs Bake Shop; however, it does not work so well for Voxeljet, which is valued at a whopping $320 million.   

 

Voxelijet saw its worse performance in 2013 when they lost 3.7 million dollars, primarily due to R&D and SG&A costs outpacing its revenue growth. 

 

At first-glance of its balance sheet, Voxeljet appears healthy with $55 million of current assets and only $9 million of current liabilities.  However, looking further at its cash flow statement you can see that it received $64 million in 2013 from stock sales.  How would have Voxeljet fared without a stock dilution?  In my opinion they would have a significant amount of debt, if not near insolvency.  Since it cannot generate enough revenue to cover its expenses, the company will likely either need to take on additional debt or further dilute its shareholders.