Last night on CNBC’s Fast Money we were joined by 3D Systems (DDD) CEO Avi Reichental (watch below) who spoke about yesterday’s ever so slight bump in guidance:
When compared to the guidance that the company gave on April 29th, 2014, on their Q1 call, it is obvious that the company merely raised the midpoint of their revenue range from $700 million for 2014 to $715 million which represents about a 2% raise on the midpoint.
For all intents and purposes nothing has changed, and to be frank, if anything, it feels as though the sentiment towards the stock is getting worse as the stock closed down 1.75% on the day, a few ticks above the lows, and 5% off of the morning highs. That is bad price action in response to supposed good news. While the company is clearly doing some very exciting things in a very new space, with an apparent first mover advanatge, the stock was caught up in a mania for the last couple years, making it hard to evaualte the company’s product lines and IP as valuation got way ahead of fundamentals.
Back in mid January when the stock was close to $90, I had the following to say on the stock (Sagging DDDs – $XONE, $DDD, $SSYS):
DDD though is the one to watch and a weaker than expected outlook could be the nail in the coffin for the trade for the time being. Not saying this space won’t have legs for years to come, since many market participants that I respect think that the technology is revolutionary and may transform manufacturing and distribution of products in ways that were unthinkable a short time ago. I get all that, but the math does not suggest that the stocks can continue their torrid pace of 2013.
Analysts expect DDD to book sales of $514 million for the year just ended, representing a 45% increase year over year, fairly consistent with its sales growth over the prior 3 years. Analysts also expect this growth to slow to 30% over the next 2 years, at a time when earnings growth has seen a substantial deceleration from 54% in 2012 to 17% in 2013. But here is the kicker, for those expecting some sort of M&A in the space, the large players seem almost untouchable. DDD has a market cap of $9 billion, and analysts don’t expect them to hit the $1 billion sales mark until 2016. What would a larger company, forget a Tech company, but an industrial company, be able to pay for them on a multiple of sales that even on a forward basis seems egregious??
So what’s changed some five months later?? Well the mania broke, and as I wrote on Jan 15th, the stock and the sector was topping out. The stock is now down about 45% from those levels, and shows few signs of recovering anytime soon.
The stock chart since the start of 2013 is fascinating, and for any of you doubters of technical patterns check out the TEXTBOOK head and shoulders formation that played out from Oct 2013 to March 2014:
Could the stock see $60 again in the coming months? No doubt about it, as sentiment is getting dire, short interest sits at 30% of the float, and the stock is getting very oversold. With a market cap of $5.4 billion, the company could most definitely be considered as a takeover candidate by a large technology or industrial company who would much prefer to buy over build in the nascent but sure to be impactful technology for decades to come.
Back in late March when the stock was $56, we took a shot for an oversold bounce, but quickly exited for a small gain as the momentum seemed weak at best (read here). Looking at the chart today, I would guess that a full roundtrip to the June 2013 lows near $40 could be in order before it’s all said and done. While valuation and decelerating growth remain a concern for long holders, they are far more palatable with the stock nearly cut in half over the last five months, and I would be far more inclined to play for a bounce a bit lower than press the short at current levels.