In a sliding market, Markforged has defied the odds, trading up to $4.80 per share. Its 6% gain since October 2024 has outpaced the S&P 500’s 8.1% drop. This performance may have investors wondering how to approach the situation.

Is there a buying opportunity in Markforged, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.

We’re happy investors have made money, but we're cautious about Markforged. Here are three reasons why we avoid MKFG and a stock we'd rather own.

Why Is Markforged Not Exciting?

Beginning as a start-up at SolidWorks World–an annual design and engineering conference, Markforged (NYSE: MKFG) offers 3D printers and softwares to manufacturers of various industries.

1. Long-Term Revenue Growth Disappoints

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, Markforged’s sales grew at a sluggish 4.3% compounded annual growth rate over the last four years. This fell short of our benchmark for the industrials sector.

2. Free Cash Flow Margin Dropping

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

As you can see below, Markforged’s margin dropped by 63.8 percentage points over the last five years. Almost any movement in the wrong direction is undesirable because it is already burning cash. If the trend continues, it could signal it’s becoming a more capital-intensive business. Markforged’s free cash flow margin for the trailing 12 months was negative 73.7%.

3. Short Cash Runway Exposes Shareholders to Potential Dilution

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Markforged burned through $62.71 million of cash over the last year. With $53.63 million of cash on its balance sheet, the company has around 10 months of runway left (assuming its $5.77 million of debt isn’t due right away).

Unless the Markforged’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of Markforged until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

Final Judgment

Markforged’s business quality ultimately falls short of our standards. With its shares outperforming the market lately, the stock trades at $4.80 per share (or 1× forward price-to-sales). The market typically values companies like Markforged based on their anticipated profits for the next 12 months, but it expects the business to lose money. We also think the upside isn’t great compared to the potential downside here - there are more exciting stocks to buy. We’d suggest looking at one of Charlie Munger’s all-time favorite businesses.

Stocks We Like More Than Markforged

The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.

While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.