We initiate coverage of Tinkerine Studios Ltd. (TSXV: TTD.V) with a Speculative Buy rating. Tinkerine develops, manufactures and sells its own proprietary desktop 3D printers, software and consumables to the consumer and education markets.
The main company characteristics and investment considerations are summarized below:
The market for 3D desktop printers is doubling every year.
- It is unlikely for the 3D printer market to be as big as other consumer products, such as phones or laptops. But this market has a great potential and market size should not be a problem for Tinkerine.
- The company was established about two and a half years ago, in a small warehouse space by four university graduates who are now in their mid-twenties.
- Since its inception, the company has had a fast and impressive track record – developing a product, attracting experienced talent to the senior management team, manufacturing, selling to multiple customers, receiving recognition by the industry, raising money and signing a distribution MOU with SoftBank.
- Tinkerine is facing stiff competition from market leaders who are larger and have longer track records.
- Tinkerine is playing catch-up from far behind with these competitors, while having a mere $2.3 million in cash versus hundreds of millions of USD for each of its two main competitors. It is also facing competition from many additional players, with relatively low barriers to entry into the market.
- The company is differentiating itself by having a particular focus on education. It seems like a sound strategy, but it is too early to tell whether it will indeed manage to outpace competition in the education space. Management expects to generate significant revenues from educational content, but it has yet to release its revenue model for this initiative.
- The current share price is similar to the price at which the company’s marquee investors bought their shares in the company. So potential investors have an opportunity to get similar terms to those of the private placement investors of 6 months ago.
- As a pure desktop 3D printing player, Tinkerine could also become a take-over acquisition target for some potential new entrants to the market who may want to fast-track their entry.
- In the end, it all boils down to management successfully executing its business plan.
We initiate coverage with a speculative buy rating and our valuation analysis, presented starting on page 5, indicates upside in the stock. However, the upside potential is highly speculative due to multiple assumptions and exposure to a number of important risks, including, but not limited to, need for additional funding, stock dilution, going concern and intensifying competition. Therefore we are withholding a target price for the stock until operating results and business advancement enables us to bring more certainty to our financial models for Tinkerine.
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