3D Systems (DDD, Financial) has been a disappointing stock to hold for investors over the last 12 months. The stock has dropped over 60% in that time period and plunged further when the company released its preliminary quarterly results this week. However, with the stock trading at 52-week lows, is it time to go bottom fishing? Let’s take a look.
A Disappointing quarter
3D systems, manufacturers of 3D printers reported their fourth quarter results. Results were not only underwhelming but also missed both top and bottom line estimates. Net income dove 86% from previous year to $1.6 million, comparable to one cent per share.
CEO Avi Reichental quoted, “Higher spending levels in support of our expansion plans pressured our earnings throughout 2014.”
Adjusted earnings were 21 cents per share, while analysts estimated it to be 25 cents per share. On the other hand revenue estimations were $202.3 million; revenue reported $187.4 million augmented by 21%. During the quarter, currency headwinds knocked off $6 million of its top line.
The Rock Hill -- a South Carolina-based company is foretelling a jam-packed year with revenues expected in the range of $850 million to $900 million. Adjusted full year earnings are expected to be between 90cents -$1.10 per share.
The company expects revenue to be exaggerated by currency headwinds in the first half of the year with discontinuation of quite a few legacy commodities.
Capital expenditures are not expected to exceed more than 3% of the revenue in 2015; reason being company expects to moderate its M&A activities.
Future Plans
With the company set to release its quarterly results next week, I think it’s the right time to buy the stock.
As a percent of revenue, expenses are expected to decrease throughout 2015 and R&D expenditures to normalise at approx. 8% to 10%. This change will help in expansion of operating leverage throughout 2015 and further.
It’ll take time for the company to make up for cumulative revenue. Moreover, that discontinuation of quite a few legacy products which has been proposed will lessen historical revenue contributions; above all from organic activities by roughly $20 million for the year.
It is assumed that bringing up the performance of North America and Asia Pacific channels up to EMEA levels will take time.
Expenditures for 2015 are planned to be 3% of the revenue and M&A activities are to be moderated. In the first half of the year company expects to generate approximately 44% revenue, with increased earnings and greater organic growth.
The company is taking proper steps to not only improve working capital management but also enhancing business and making decisions in company’s favour.
3D Systems is at present exchanging at 29x its 2015 earnings and 22x its 2016 earnings. In spite of the fact that these estimates may keep on inclining down going ahead, I accept that we are close to the end of the negative earnings desires cycle and that estimates may even enhance in the accompanying months. There are a few explanations behind this idealistic articulation:
1. Accessibility crevices and assembling imperatives have been determined.
2. Q4 revenue direction infers a higher revenue development rate than in Q3 and administration may have taken in a lesson to not over-guarantee any longer, and they may have shared a moderate view on Q4 figures, which may leave space for upside astonishments going ahead.
3. The organization's forceful acquisition procedure may give some upside to current revenue estimates.
Conclusion
Although there is still a lot of uncertainty, I believe that the risk/reward ratio has turned to the long side following the steep drop in 3D Systems share price. The falling expenses and the incorporation of the company’s recent mergers will benefit the company in the months to come.