Does small-cap Farm & Heavy Construction Machinery company Desktop Metal have a sustainably profitable business model? By studying its gross margins and comparing them to its operating margins, we can gain insight into quality of its business. With gross margins at 7.2%, you might be telling yourself the Desktop Metal is profitable -- but there is more to the story.
Gross margins take into account only the cost of revenue, meaning the expenses directly related to each sale. So it's important to also look at operating margins, which take into account overhead costs. One way to look at it is that gross profit gives insight into Desktop Metal's market and the viability of its business model. Operating margins, on the other hand, show you how efficiently the company is implementing this business model.
| Date Reported | Revenue ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-03-01 | 209,023 | -193,952 | 7 | -56.25 |
| 2022-03-15 | 112,408 | -94,115 | 16 | 117.58 |
| 2021-03-15 | 16,470 | -31,519 | -91 | 1.09 |
| 2020-02-11 | 26,439 | -50,796 | -92 |
By reviewing several years of Desktop Metal's income statemet, we can see that, although gross margins are currently positive, the company has on average lost money on each of its sales with an average gross margin of -40.0%. Cost of revenue has been changing at a rate of -0.0%, while its revenues have a growth rate of 0.0%. As a result, gross margins have a delta of 0.7%.
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-03-01 | 209,023 | -248,034 | -111 | 28.85 |
| 2022-03-15 | 112,408 | -194,167 | -156 | 72.09 |
| 2021-03-15 | 16,470 | -77,006 | -559 | -35.68 |
| 2020-02-11 | 26,439 | -84,688 | -412 |
The table above tells us that, on average, Desktop Metal has not been profitable over the last four years, which should be a warning sign to prospective investors. One bright spot, however, is that the company's operating margins are growing at an average yearly rate of 27.9%.
