Three-dimension printing stocks have rallied hard over the last few weeks. The likes of 3D Systems (DDD, Financial) and Stratasys (SSYS, Financial) are up substantially from their all-time lows. The rally was driven by better-than-expected results and improved guidance. Having been beaten down for almost two years, a small rally in 3D printing stocks was long overdue.
However, the recent rally has been overdone, and investors need to make the most of it by selling the stocks. For instance, 3D Systems has rallied over 150% in just a few weeks because the company marginally improved its guidance and delivered better results.
Out of all the major 3D printing players, 3D Systems has rallied the most; however, the rally is not sustainable, and the stock will likely fall to $10 in the coming months. That represents about 30% downside potential from the current levels, which is why the stock is a good short. As for longs, investors should make the most of the rally by selling the stock.
The bar was too low
While 3D Systems did beat the analysts’ expectation, the rally that followed is unjustifiable as the bar was set pretty low for the company. 3D Systems failed to give guidance in the past, which is why analysts had lowered the estimates for the company. Hence, the beat isn’t as impressive as it looks and certainly the 100%-plus rally is overdone.
Three-dimension printing technology is still facing the same problems that it did two years ago. The slow speed, high cost and low efficiency of 3D printing technology make it useless for industrial and consumer use. Rival Stratasys has already discontinued its consumer segment, and the industrial segment is likely to continue shrinking as well.
Moreover, the increasing competition is another headwind for 3D Systems. Given the small size of the 3D printing industry, it is impossible for so many companies to coexist. Many new startups can eat into 3D Systems’ margins and market share, which is why the stock should be shorted after the recent rally.
Conclusion
3D Systems may have beaten the analysts’ estimates, but the report wasn’t that impressive. Moreover, the recent rally in the stock in unjustified and it’s only a matter of time before the stock comes crashing down to under $10. Investors should capitalize on the rally by shorting the stock.
Disclosure: The author doesn’t have any position in the stocks mentioned in the article.
