3D Systems Corporation (DDD) jumped almost 6% Wednesday alone in what was an up day for the broader market, and an especially strong day for the tech sector.
Impressed? That’s nothing compared to the gains DDD stock posted earlier in the week. Following a better-than-expected earnings report, shares of 3D Systems exploded 25% in one day. Add it up, and year-to-date gains for DDD stock are well over 50%.
That’s the good news. The bad news? Despite that bounce, DDD stock is still worth half of what it was 12 months ago.
But what’s past is past … right?
Does the rebound in 3D Systems proved that 3D printing as a sector is ready to soar, and that the worst is over for DDD stock specifically?
To be blunt, the answer is no. There’s a laundry list of reasons to be skeptical about the prospects of DDD stock. Here are just a few.
The Biggest Problems With DDD Stock
“Better Than Expected” Isn’t the Same as Good. 3D Systems, as mentioned already, soared thanks to an earnings beat. But earnings is largely an expectations game, and it’s important to remember that the results were simply less bad than Wall Street was expecting. They were hardly good. In the most recent quarter, sales fell year-over-year, gross margins declined by 15 percentage points — hardly a small margin — and the company failed to give an outlook. In any other world, that would scream “sell.” The only reason it didn’t was that DDD stock has been screaming “sell” for some time.
There Is Sector-Wide Uncertainty. On the earnings call, management noted that “market conditions remain challenging and uncertain.” (Note: Speaking of uncertainty, this was said by the company’s interim CEO.) I’ve expressed a similar sentiment before, and little has changed (especially if execs within the sector are saying it). 3D Systems works within a market that displays amazing long-term promise but remains young. There will be bumps and bruises as companies figure out not just applications for 3D technology, but how to make said applications profitable. You don’t want to suffer those bumps and bruises too.
Analysts Aren’t Convinced. Want proof that the earnings report from 3D Systems wasn’t that great? Look how analysts reacted. Despite the beat and massive pop, not one but two analysts downgraded DDD stock afterward, saying “the rally was excessive given the lack of strong demand and falling printer sales.”
The Stock Is Trading for an Unreasonable Premium. Thanks in part to that excessive rally, 3D Systems looks quite frothy. Shares are now trading for over 27 times forward earnings. Meanwhile, long-term earnings growth is slated for less than 8% per year. That’s quite the premium. It translates to a PEG ratio north of 5, for starters, and is especially concerning considering the company itself isn’t even confident or stable enough to forecast earnings in coming quarters.
Add it up, and 3D Systems comes with red flag after red flag. That’s true whether we’re dissecting the earnings report or analyzing the broader 3D printing market. And while the latest bounce may seem bullish, it’s really just another red flag to add to the row of worries.
Until DDD’s market, margins, management and more are ironed out, remain on the sidelines.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
