3D Systems (DDD, Financial) has had a torrid time in 2014. The stock has fallen considerably and investors might be thinking about buying the stock at a discounted price. However, I don’t think it’s a good idea, since 3D Systems isn’t out of its slump yet. The company’s share price has been recently driven up by the acquisition rumors, however, there are many reasons to believe that these rumors will never materialize. Moreover, given the negatives, which are discussed below, 3D Systems is definitely a stock not worth buying at the present valuations. Let’s take a look at the things working against 3D Systems.
Problems With 3D Systems
Undoubtedly, the 3D printing industry has a splendid future, and the company's 3D printers could convey on volume expectations. At the same time, the company will confront intense rivalry as some key patents of the company have started to terminate, and this will keep happening for three more years, influencing the normal selling prices and the gross margin of 3D Systems.
Not only did the company miss the analysts estimates last quarter, its stock also dropped because its organic development and gross margin both missed the mark compared with the same quarter last year. Organic development came in at 10%, which is less than 30% that was accounted for in the second quarter of the previous year, and surely was underneath expectations. This decrease in organic development is due to the deferral of some new item launches. The gross margin for the second quarter, as said above, was down from 52.1% in the second quarter.
Not a Takeover Target
Many reports have suggested that 3D Systems may be an acquisition candidate for companies like Hewlett-Packard (HP), and due to the company’s recent drop, investors have started to believe this story. However, I think it’s very unlikely that 3D Systems will be acquired by Hewlett-Packard or any other company.
3D Systems doesn’t have a solid presence in the industrial segment of the business, compared to peers such as Stratasys (SSYS) and Voxeljet (VJET). Also, given 3D Systems’ present valuation, I don’t think it will be a worthy buy for Hewlett-Packard. HP has clearly shown the intentions of entering the 3D printing market and the company will be better off spending the money on R&D rather than acquisition. Given that 3D Systems has acquired almost 50 companies is the last 2 years, it will not be a good bit of business for HP to shell out billions to buy 3D Systems, especially when many of those acquisitions have failed to add to the company’s bottom line.
Not making enough money
3D Systems has consistently grown its revenue, however the company has failed to improve its bottom line. This is a clear indication that the company has not been able to integrate the acquisitions into its core business. Hence, the failure of acquisitions is a bad news for investors and a good enough reason to sell the stock.
Conclusion
Given the negatives, 3D System potentially has a lot more downside and is not worth buying. The 3D printing market space is too competitive for 3D Systems, and given the company’s acquisition spree, 3D Systems looks like a house of cards. The company also recently lowered its guidance for the second time in almost 6 months, and this is another sign that investors should dump the stock.
