On Thursday, 3D printer stock 3D Systems Corporation (NYSE: DDD) rose 3.91% to $30.57 and it was rising another 2% in pre-market trading plus the stock has practically doubled over the last year in spite of a recent pullback. On the other hand, 3D printing and 3D printers are truly a revolution in the making; but it can also be argued that 3D stocks like 3D Systems Corporation have been overhyped to such a point where the shorts have started to pile in. So should you be investing in or shorting 3D Systems Corporation? Here is the case for both strategies:
The Case for Investing in 3D Systems Corporation
Certainly, 3D Systems Corporation has rewarded long-term investors as the stock is down 10.2% since the start of the year, but up 98.8% over the past year and up 132.8% since the middle of 2011:
However and as of March 12, 3D Systems Corporation also has short interest of 29.24% according to HighShortInterest.com. That may sound bearish, but its also important to remember that shorting a stock is a dangerous game to play as the shorts can easily find themselves trapped in a short squeeze (to the benefit of investors) should DDD’s stock move back into positive territory for this year.
3D Systems Corporation recently reported record quarterly revenues of $101.6 million, a 45.4% increase, along with a 53.5% full year revenue rise to $353.6 million. In addition, the company reported a 44% EPS gain that was its 10th straight quarter of double- or triple-digit growth (but also a deceleration from the previous quarter).
Ironically and despite such impressive results, the stock tanked because it failed to live up to Wall Street’s even loftier expectations for 3D printing stocks. Nevertheless, industry demand was reported to be healthy; but since President Obama had even touted 3D manufacturing in his State of the Union address, expectations were just too high.
Finally and in February, 3D Systems Corporation also completed its acquisition of Geomagic, Inc., a global provider of 3D authoring solutions which includes design, sculpt and scan software tools, for $55 million in cash. 3D Systems Corporation expects the acquisition to be accretive to earnings and contribute around $17 million of revenue to its previously announced guidance for the year.
The Case for Shorting 3D Systems Corporation
While 3D printing is clearly a good way to validate a design and to produce a mock-up for marketing purposes, investors need to remember the parts that 3D printed parts are rarely the actual products we end up buying as there are limited materials (at this point in time) which can be used in 3D manufacturing. In other words, we are still a long way away from having a 3D printer spit out an iPhone or a car (parts for them perhaps, but not an end product itself that is sold to customers).
In addition, a quick look at many of the articles or blog posts appearing on the newswires for 3D stocks like 3D Systems Corporation appear to be coming from bears who are shorting such stocks. While its never a good idea to blindly follow the herd instinct on or off Wall Street, its also not a good idea to stand in its way as its easy to get trampled.
Of course, it was recently revealed that CTO Charles Hull dumped around 500,000 shares at prices of $32.34 to $33.04 and insider selling is never a good sign; but given DDD’s along with the Dow’s recent run-up, perhaps Hull just wanted to take some of his profits off the table (no harm in that).
On the valuation side of things, 3D Systems Corporation has a trailing P/E of 64.63 - rather rich for conservative or value hungry investors. However, the stock also has a forward P/E of 23.70 – not exactly value territory, but certainly a reasonable valuation given the nature of what it does.
Finally and for technicians, a look at 3D Systems Corporation’s chart may or may not have you rushing out to short it as notice the trend lines:
The Final Verdict? Again, I think 3D printing is revolutionary and will eventually live up to much of the hype surrounding it. With that said, there can be a short-term case for following the herd and shorting 3D Systems Corporation on its current weakness (or rather on everyone beating up on 3D printer stocks in general) and another case for investors with a long-term time horizon to still invest and wait for the 3D printing revolution to take hold.