3D Systems is a Value Trap

3D Systems (DDD) has undoubtedly been my best short call ever. I have recommended shorting the stock multiple times over the few years and my call has played out nicely as the stock has fallen from $90 to under $9. With the stock now trading around $9 for a few weeks, investors may think that it has bottomed.

Although 3D Systems is not an attractive short anymore, I think investors shouldn’t buy the stock hoping for a turnaround. 3D Systems is a value trap and investors should continue avoiding the stock as it likely has more downside to offer.

Slowing Growth

With 3D printing still in its nascent stages of development, 3D Systems was supposed to be a growing company.
However, as evident by the company’s latest quarterly report, the company’s growth is slowing down at a rapid pace. The company reported a significant dip in the organic revenue in the previous quarter and gave no guidance for the future.

3D Systems has also laid off workers at a rapid pace. The company recently sacked 80 employees and the signs don’t look good for the company going forward. Since 3D Systems hasn’t guided for the upcoming quarter, I am expecting another quarter of falling organic sales and earnings miss. The widespread layoff further points towards the slowdown in the industry and I would still recommend investors to stay away from the stock.

3D Systems doesn’t have as much downside now and as a result, the short interest in the company has fallen to new lows. However, 3D Systems still has high short interest and downside potential. Hence, investors betting on a turnaround shouldn’t expect things to turnaround anytime soon.

The stock may have fallen, but it is still trading at a high valuation and is losing money. The company has a market cap of over a billion dollars, and with the sales falling, I don’t see the company growing into its present valuation.

Conclusion

The short case for 3D Systems may not be as strong as it was a few months ago, the stock still has downside potential. Investors shouldn’t look for a bottom and stay away from the stock for the time being. The chances of 3D Systems turnaround are next to zero, and investors should look at other investment opportunities. Despite the crash, 3D Systems is still overvalued, and is a sell. All things considered, the stock still has massive downside potential and investors should continue avoiding it going forward.

 
Published on Dec 17, 2015
By Ayush Singh

Copyrighted 2016. Content published with author's permission.

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