Shares of 3D printing company 3D Systems (DDD) fell more than 15% in morning trading on Wednesday after warning investors that third-quarter results weren’t going to be quite as rosy as previously expected.
Once one of the highest-flying growth names in the whole market, DDD stock has lost more than 60% of its value so far in 2014 as gaudy growth expectations and less-gaudy results pummeled shares.
In fact, the entire 3D printing industry is unpopular with Wall Street this year: Shares of Voxeljet (VJET), ExOne (XONE) and Stratasys (SSYS) are all down year-to-date, posting losses of 65%, 67%, and 13%, respectively.
Unreasonable Valuations Lead to Poor Performance
Even after today’s precipitous drop, DDD stock trades at more than 100 times earnings and nearly 40 times fiscal 2015 earnings estimates. So when DDD said this morning that third-quarter sales and earnings were likely to disappoint, investors headed for the hills en masse.
Consensus Wall Street estimates called for earnings per share of 21 cents and revenue around $186 million in the third quarter. Too optimistic, said 3D Systems — instead, the company is projecting EPS in the 16- to 19-cent range and sales between $164 million and $169 million.
DDD investors are getting sick of the earnings misses, and I can’t blame them. After all, 3D Systems — in recent history, at least — doesn’t have the best record come earnings season. Consider 3D’s 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.”
No sane investor can hope to break even on a stock like DDD if the company regularly misses Wall Street expectations. At the low end of DDD’s revenue expectations for the third quarter, sales are set to grow at about 21.5% year-over-year. Wall Street was looking for 37% growth.
No point in sugarcoating here: that’s an abysmal, unqualified letdown.
Then again valuations across the entire industry are frothy. In the context of DDD’s slower-than-expected growth, InvestorPlace’s Tom Taulli wrote:
“Tthis means that the valuation is at nose-bleed levels. The forward price-to-earnings ratio is 62. But then again, the rest of the 3D printing stocks are also at hefty valuations. For example, SSYS’s multiple is 55 and VJET’s is a massive 509!”
Is it any coincidence that SSYS stock and VJET stock are both down big-time this year, too?
Stay away from 3D printing companies until growth picks up and valuations come back down to earth.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid.