Profit From 3D Systems' Insane RallyDDD) are up almost 150% from its all-time lows.
Given that 3D Systems was beaten down over the last few years, a rally was long overdue. After months of disappointment, 3D Systems did deliver on its earnings and raised guidance. Thus, a minor rally makes sense.
However, the fact that 3D Systems has rallied over 150% from its 52-week low levels in just a few months makes no sense.
The fact that 3D printing companies are raising guidance does show that the demand within the sector is stabilizing. However, that doesn’t justify 3D Systems’ rally as the company is still in troubled waters and is facing cutthroat competition from old as well as new players.
The rally was driven by large earnings beat. However, investors fail to realize that the bar was set too low for 3D Systems in particular. The company had failed to give guidance and was unsure of the demand. Thus, the beat isn’t as impressive as it looks.
In addition, the consumer segment of the 3D printing industry has been very weak and has almost vanished. Investors are not pricing in the concerns in 3D Systems current price, which is why I think the stock is a short.
Margins will be lower
3D Systems’ margins will continue heading lower as more players enter the 3D printing space. The entire 3D printing market is not big enough to accommodate numerous companies. As a result, competition from new companies will force 3D Systems put downward pressure on its margins.
The company is already losing money at a very fast rate and further margin compression will not be good for investors. Thus, I think investors should capitalize on this rally by shorting the stock.
The 150%+ rally in the stock is something I cannot comprehend. I believe the rally is unjustified and the stock will crash soon. The company’s revenue growth has already stopped, yet it has a P/S ratio of over 2. Thus, I think the stock is trading way above its fair value and it a great short candidate at current levels.
Published on Mar 30, 2016By Ayush Singh