Don't be Afraid of Shorting 3D Systems and Stratasys
Earlier this week, I penned down an article anticipating 3D Systems’ (DDD) big earnings and revenue miss. The company released its Q3 results yesterday and my doubts were proved correct as the company’s revenue and earnings well below the Street’s estimates. The company reported earnings of $0.01 per share on revenues of $151 million. The bottom-line was $0.06 below the consensus target while a 9% dip in sales led to a huge miss of roughly $30 million.
For a company which was supposed to revolutionize the traditional process of manufacturing, the slowdown in revenue is a big red flag.
Although 3D Systems has managed to remain profitable, the company’s earnings are already in a free fall. Throw into that the cost involving goodwill write-offs and you have a grim picture of the company’s future. The expiry of many 3D printing patents has greatly reduced the entry-barriers. As a result, many companies are expected to enter the “apparently booming” market, the most popular being Hewlett-Packard (HPQ).
The 3D printing industry is worth under $10 billion as of now and given the amount of companies that have or are about to enter the market, I think 3D Systems, along with other companies like Stratasys (SSYS), Voxeljet (VJET), and ExOne (XONE) will struggle to sustain their present valuation.
Stratasys is treading down the same path as the company also missed on earnings and revenue. The company’s slowing growth and inability to generate huge profits has taken a toll on the stock. Despite the earnings miss Stratasys, like 3D Systems, ended the day in the green zone.
Regardless of the short squeeze, I think investors should continue betting against both 3D Systems and Stratasys. Both the stocks have reported terrible earnings that paint a grim picture of their future prospects. The stocks may have risen considerably following the earnings release, but I think they still possess massive downside potential. Hence, I think investors should short 3D Systems and Stratasys.