SGLB: After Signing a Major Deal with Lockheed Martin, is Sigma Labs a Buy?

Shares of 3D printing software developer Sigma Labs Inc. (SGLB) hit their 52-week high of $9.75 on March 15 after the announcement of the company’s joint venture with Lockheed Martin Corporation (LMT). The stock’s trading volume was 287.31 million on that day.

SGLB signed a contract with the defense giant to design PrintRite3D in-process quality assurance software solutions for LMT’s Space Additive Design & Manufacturing Center in Californian. With the global 3D printing industry slowly gaining traction, the deal potentially paves the way for SGLB to become a market mover in the space.

However, most investors purchase SGLB stock based on the 3D printing industry’s prospects rather than on the company’s fundamentals. So, SGB is currently trading at a sky-high valuation, with inadequate growth potential, we believe.

Click here to check out our Software Industry Report for 2021

Here’s what we think could shape SGLB’s performance in the near term:

Weak Financials

SGLB’s 17.22% trailing-12-month gross profit margin is 39.8% lower than the industry average 28.62%. And its 0.16% trailing-12-month asset turnover ratio is 78.4% lower than the industry average 0.75%. Moreover, the company’s trailing-12-month ROE, ROA, and ROTC values are negative.

SGLB has yet to cross the $1 million mark in revenues, despite having a market capitalization of more than $37 million. In addition, the company’s trailing-12-month ebitda, net income and EPS values are in the red. The stock poses high liquidity risk also: it does not have stable and periodic cash inflows. Its trailing-12-month net operating cash flow and levered free cash flow are negative $4.69 million and $2.88 million, respectively.

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Stretched Valuation

In terms of trailing-12-month ev/sales, SGLB is currently trading at 42.91x, 1897% higher than the industry average 2.15x. The company’s trailing-12-month price/sales and price/book multiples of 16.20x and 4.44x, respectively, are significantly higher than industry averages.

POWR Ratings Reflect Bleak Outlook

SGLB has an overall F rating, which translates to Strong Sell in our proprietary POWR Ratings system. It has an F grade for Value, Quality and Stability. The stock has a beta of 1.44, indicating high volatility, in sync with its Stability grade. SGLB’s relative overvaluation and negative profitability ratios justify its Value and Quality grades.

Of the eight stocks in the F-rated Technology – 3D Printing industry, SGLB is ranked last. In addition to the grades we’ve highlighted, you can check out additional SGLB Ratings for Sentiment, Momentum, and Growth here.

There is only one stock in the Technology – 3D Printing industry with an overall rating of B. Click here to see it.

Bottom Line

An interesting fact to note about SGLB is that the company had zero long-term debt and liabilities (barring a $53.55 million CARES Act deferred payroll tax liability) as of the third quarter, ended September 30, 2020. With historically low interest rates, and Fed’s $120 billion monthly bond purchase plans, corporate debt has been extremely cheap in 2020. Also, bond interest is e tax deductible, reducing the overall corporate tax burden of debt-issuing companies.

We think the company’s poor financials and stretched valuation make the stock best avoided now.

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SGLB shares were trading at $4.30 per share on Wednesday afternoon, down $0.32 (-6.93%). Year-to-date, SGLB has gained 27.22%, versus a 4.17% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...