Yesterday, shares of Fitbit (FIT) closed up 13.5%. Shares of 3D Systems (DDD) closed up 17.5%. This morning, shares of Square (SQ) opened up 15%. All of these initially hot out of the box (IPO) tech stocks are seeing massive short squeezes following results that were not as bad as expected (short interest FIT @ 33%, DDD @ 26.5% & SQ @ 20%). What’s interesting about this group is that the companies represent themes in technology that will likely be embedded in our everyday lives at some point in the future (wearables, 3-d printing & mobile e-payments). But investors have just not been ready to embrace the promise of these new technologies as it relates to their near term profit potential.
While hyper sales growth usually overshadow investors concern about earnings losses as a tech company pushes for broader adoption of their products or services, a downshift in that revenue growth, even after printing modest earnings can be a death-knell for a once hot stock. Look no further than DDD. Back in 2013, at its peak the stock had risen 150%. And I recall discussing the stock multiple times a week on CNBC’s Fast Money. It was a hot stock. The consumer and industrial promise of 3D printing technology (from 2010 to 2013 DDD sales grew about 45% a year, at their peak in 2014 grew 27% and half flat-lined since). On yesterday’s show, when the stock had its largest one day gain in years (maybe ever), the stock didn’t even get a mention because it is still down 85% from its 2014 all time highs. TV has moved on to other buzzier technology stories like electric & autonomous driving vehicles. On last night’s show we probably spent a quarter of the time discussing Tesla’s (TSLA) Q2 earnings report, despite the stock being unchanged from its 4pm close.
For those of you who were not around during the dotcom bubble of the late 1990s, and its subsequent implosion in the early aughts, this is what the five chart between 1998 and 2002 looked like for once hot tech stocks:
So here is a little pro tip. If you are trying to figure out the next investment trend in an emerging technology is, learning about the company as they’re ringing the opening bell at the Nasdaq or the NYSE on their IPO, it may already be too late. And if you’re hearing about it from me or another stock jockey on America’s Favorite Post Market show 😉 then I suspect the easy money has already been made. That’s just the way that financial media works. The big moves get the headlines. React accordingly knowing the move already happened. And don’t be late into what could be a long dirtnap for a once promising tech stock. It happens.
All that said, DDD is now up 67% on the year, despite trading 26% below its 52 week highs made in April. The stock has seemingly found some technical support at $12 and the stock is essentially flat year over year:
While some investors remain skeptical of DDD’s business model and/or technology, others are starting to kick the tires. Those investors probably see a sales trough, a reasonable valuation (2.5x sales), decent balance sheet (10% of market cap in cash, no debt) and possibly the potential for consolidation as the industry emerges from a sales downturn. But ultimately it all depends on whether and when the technology and its practical uses (both consumer and industrial) get closer to broader adoption.