Whether it was because the top-line continued to expand at a decent pace or a major competitor received a Wall Street upgrade, the huge rally in 3D Systems (DDD) stock Thursday and early Friday does not make it — or any of the 3D printing stocks — worth a bother.
If anything, we’re looking at yet another dead-cat bounce for DDD and Stratasys (SSYS), the latter being the only other name in the industry with a market cap that’s not a cruel joke.
After all, the latest DDD earnings report was weak, as were quarterly results from Stratasys a few days ago. And both companies pulled their outlooks.
Once upon a time, 3D printing stocks rode a gigantic hype bubble. It floated on the idea that 3D printing was a revolutionary technology sitting on the cusp of widespread adoption by a range of industries and even consumers. Heck, even Wal-Mart (WMT) and Home Depot (HD) got in on the act.
Instead, DDD and SSYS are struggling with weaker-than-expected demand, higher costs and reliability issues, while would-be customers wait for cheaper, more powerful machines to hit the market.
The bottom line is that the fundamental problems facing both companies are getting worse, not better.
Both companies’ outlooks — or what they gave of them — are more uncertain than ever. And that’s death for a former momentum stock.
Red-hot stocks need to feed the excitement with a beat and raise. Anything less is an excuse for speculators to take profits off the table.
3D Printing Stocks Can’t Get Up
And, boy, have they. After peaking at the end of 2013, DDD stock has dropped 85%. SSYS is down about 75% from its own peak.
Bear in mind that both names have staged numerous false breakouts along the way. Why should DDD or SSYS get the benefit of the doubt that any upside isn’t yet another fake out? Both stocks were already down by Friday’s afternoon trading.
Besides, look at the alleged reason for this rally in DDD and SSYS: A Citigroup analyst raised SSYS to “buy” from “neutral” because the worst appears to be behind the company, even after printing a crummy quarterly report. Apparently, the market believes the same logic applies to DDD despite its own disappointing quarter.
But maybe the worst really is over for these companies. If so, it sure is hard to tell when DDD and SSYS pulled their full-year outlooks.
Regardless of what life these stocks showed Thursday and early Friday, macroeconomics aren’t the only problem. As 3D Systems CEO Avi Reichental said in a media release, the company is “disappointed” with results and pledged to improve the “quality of our products.” He also said DDD intends to drive “process improvement” and fix its sales operation.
Even in corporate-speak, it sounds like DDD is plagued by shoddy workmanship and general disarray. A softer-than-expected market for 3D printers and company-specific problems do not make for a winning combination.
That goes for SSYS too.
Whatever the cause, whenever DDD or SSYS rally, you can safely be that it will not last.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
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