Shares of Sigma Labs (SGLB), a 3D Printing penny stock I profiled on June 26 in this article, have been on a roller coaster ride over the last five weeks. The stock went parabolic from .03 to over .13 in that time frame and looked to be starting to pull back on July 23. The next day, the company announced a private placement that began a high volume, precipitous 5 day sell-off due to the size of the placement (120M shares) and the terms seen as unfavorable to current shareholders.
I’ve received more emails, private messages, and comments regarding Sigma Labs than any other 3D printing stock I’ve profiled (which is all of them), so interest in this company is high. As a result I thought it was time to share my thoughts on the recent private placement and what I plan to do going forward.
Disclaimer: The following is not investment advice and individuals should not make any investment decision based on what they read here without performing their own due diligence and consulting a professional investment advisor. The disclaimer for all articles on 3DPrintingStocks.com (see sidebar) applies here as well.
- Private placements take several months on average to complete, not a few weeks- which is the time frame that shares of Sigma Labs (in the last month) went parabolic from .03 to .13. This is a fact, not theory or conjecture. My best estimate is that the private placement was in discussion with the pricing agreed upon back in March or April, which was well before the recent rise in share price, and before GE Aviation announced that they were in partnership with Sigma Labs in beta testing of PrintRite3D in this press release on May 24.
- Investors understandably pose the question: “Why didn’t Sigma Labs renegotiate the terms of the deal at the last minute due to the increase in share price the company had experienced?” The answer, in my opinion, is that this would have not only delayed the $1.2M in cash Sigma Labs required to commercialize PrinteRite3D, it would open Sigma Labs to lawsuits from accredited investor(s) involved in the private placement for a failure of good faith negotiations. I know if I were the accredited investor involved in this particular placement and at the last minute Sigma Labs decided to change the terms of the agreement, I’d be calling my attorney ASAP.
- The dilution is large at 120M shares, there’s no denying that. But even with the additional shares, Sigma Labs has a market cap of just $27M. For the sake of comparison, 3D bioprinting company Organovo Holdings, (ONVO), has a market capitalization of $360M, and had about the same amount of revenue in 2012 as Sigma labs (approximately $1M). Organovo lost .44/share last year while Sigma Labs essentially broke even. So in terms of market capitalization, Sigma Labs has plenty of room to grow, especially as commercialization of PrintRite3D (estimated by management in their Q1 SEC filing to begin in the second half of this year) begins.
The Silver Lining to the Placement
Flush with an additional $1.2M in cash, Sigma Labs should have funding to necessary to begin the early stages of commercialization of PrintRite3D. For those unfamiliar with PrintRite3D, it is a combination hardware and software system that can be utilized for real-time, “during the print” quality inspection and control during 3D printing of high grade metals used in primarily in the aerospace, defense, automotive, and biomedical industries.
How critical is a system like PritRite3D to the future of additive manufacturing? The answer to this question is given by none other than Terry Wohlers of Wohlers Associates, the undisputed guru and industry spokesperson of additive manufacturing.
In a June 11 interview by GE Aviation’s Greg Morris with Terry Wohlers, Mr. Wohlers made the following statement about a critical need for the future of 3D printing:
“Standards for processes and materials need to be created so that design engineers can specify AM with confidence. Systems need to include real-time process monitoring and control.”
Now, “real-time process monitoring and control” is exactly what PrintRite3D does, it’s received positive results announced by GE aviation in beta testing, and Sigma Labs announced that they have patents and an application for patent extensions for PrintRite3D in a February 2013 press release.
There is no doubt in my mind that PrintRite3D has the potential to be a game-changing opportunity for Sigma Labs, as well as the 3D printing industry. “Real-time process monitoring and control” is a need pointed out by Terry Wohlers, and Sigma Labs has patents and patent extension filed on the technology to meet that market need.
SGLB shares have lost over 60% of their value in the last 5 days. Shares closed at the 50 day moving average yesterday, which should be a key support level. So what am I doing now? I’m watching. I’m waiting. And when I see shares begin to reverse and head up again I’ll be adding to my position, and adding heavily. With the additional cash now in the Sigma Labs coffers from the private placement, commercialization of PrintRite3D is one step closer. Any announcement from Sigma Labs on revenue and sales of PrintRite3D will, I believe, send shares above their recent highs and beyond.
Gary Anderson……..Follow me on Twitter: @3DPrintingStock
Disclosure: I am long Sigma Labs (SGLB). I received no compensation in any form, from Sigma Labs or any third party for this article.