3D printing companies can’t catch a break. The industry took a tumble yet again Thursday, and thanks goes to 3D Systems (DDD), which missed Wall Street’s top- and bottom-line targets.
The biggest 3D printing companies — DDD, Stratasys (SSYS) and ExOne (XONE) — had a great couple of years. But in a year when the market turned against momentum stocks, DDD, SSYS and XONE stock fell back to earth — and they came down hard.
Thursday’s broad selloff added to an ugly year for these names, but they’ve seen worse.
DDD and XONE were off nearly 40% for the year-to-date before 3D Systems touched off the latest avalanche in the industry. SSYS stock was off more than 20% on the year.
Cut to Thursday, and the 3D printing companies took some more shelling. DDD stock fell more than 13% at the opening bell, though its losses were pared back to about 10% as of this writing. SSYS and XONE were down 3% and 8%, respectively, in sympathy.
It all goes back to dashed expectations.
3D printing companies are (or were) momentum stocks. Generally speaking, as long as momentum stocks deliver ever-accelerating revenue growth, the market loves them.
No earnings? Crazy-high valuations? No problem. The promise of high-growth momentum names is that they will deliver whopping profit growth one day — and will grow into their valuations in the process. Of course, by the time that happens the easy money will already have been made. You have to get in early.
Sticking with such a stock requires faith in its whole story — from thesis to valuation — but faith is a fragile thing. Anything that doesn’t conform to the story can pull the plug on a momentum name in an instant.
And ever since earlier this year — when DDD and SSYS cut their profit outlooks — the story for 3D companies has been coming apart.
3D Printing Companies Lose Their Mo-Mo
For the most recent quarter, 3D Systems said total revenue grew 25% to $151.5 million from $120.8 million a year ago. The problem is that analysts were looking for revenue to hit $162.3 million, according to a survey by Thomson Reuters.
Earnings likewise blew estimates. On an adjusted basis — which is what analysts look at — 3D earnings came to 16 cents a share, or 2 cents shy of the Street’s forecast.
As we’ve noted before with 3D printing companies, the valuations are so high they really can’t afford even just to match Street estimates. Indeed, as last quarter’s earnings season proved, anything less than a beat-and-raise quarter is enough to summon the bears.
Anyone holding 3D printing stocks needs to be constantly reassured that the risk is worth taking. After all, in the case of DDD stock, shares were going for 47 times forward earnings before Thursday’s rout, while SSYS had a forward P/E of 35. XONE? We’re talking more than 300.
These are examples of companies that need to grow into their valuations. Until then, they’re a combination of hope and hype.
We’ve said it before: Expectations and share prices are too high for the 3D printing companies. Until both come down to more realistic levels, the entire industry remains a sell.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.