After 50% Gains, It's Time to Short 3D SystemsDDD), in particular, has seen massive gains as the stock is up about 50% from its all-time lows. Despite the recent rally, I think 3D Systems is still in troubled waters and investors should use the uptick to short the stock. After the recent rise, I think 3D Systems is an attractive short as I expect the stock to continue moving lower.
There have been many factors that have contributed to the rally of 3D Systems. 3D Systems saw a nice two-day rally following Voxeljet’s (VJET) strong guidance.
3D Systems expects Q4 revenue to come in at $183 million a lot higher than the $160 million expected by the analysts. The charge related to the shift away from consumer products will be roughly $27 million. Despite the better0than-expected results, the company’s new CEO sounded pessimistic regarding the future. The uncertain commentary of the management clearly implies that there may be more pain ahead for 3D Systems and the recent rally will likely prove to be short lived.
Interim CEO Andy Johnson said, "Industry conditions remain challenging and demand may be uneven in the coming periods."
Given the “challenging industry conditions”, I expect 3D Systems to struggle going forward. Hence, investors shouldn’t consider this as the start of a turnaround as the company is still in troubled waters.
Analysts are expecting 3D Systems’ sales to remain almost flat for fiscal 2015 and fiscal 2016. Given the flat growth estimates, 3D Systems’ stock looks expensive with a P/S ratio of almost 1.6. In addition, the stock is still trading at 38x forward earnings and will be subjected to more downside if the recent rally in the market proves to be short lived.
3D Systems has appreciated considerably over the last few weeks. However, investors should consider it a start of a turnaround as the stock can still continue heading lower. With revenue growth expected to be flat, shares of 3D Systems are trading at a hefty premium. In addition, the pessimistic commentary by the company’s management points toward the fact that things may get worse for the company going forward. In that case, 3D Systems will fail to meet the revenue estimates and will record another annual decline in sales, which in turn is not good for the stock. Thus, I think investors should short 3D Systems after the recent rally.
Published on Feb 22, 2016By Ayush Singh