3D printing stocks have had a torrid time over the last 18 months. I have recommended selling 3D printing stocks multiple times in the past, and I recently highlighted why investors should stay away from 3D Systems (DDD, Financial). 3D Systems is a sell, but its peers aren’t doing any better. Investors should also stay away from Stratasys (SSYS, Financial).
The 3D printing bubble has finally burst as sales across the entire sector are falling rapidly. 3D Systems reported a 15% dip in organic sales while Stratasys fared even worse as it shared a 22% dip. The fate of other companies in the sector has been the same as the likes of ExOne (XONE, Financial) and Voxeljet (VJET, Financial) have witnessed similar declines.
The 3D printing bubble may have popped, but the stocks may have more downside to offer, which is why investors should stay away from Stratasys. If falling sales isn’t convincing enough, investors can also take a look at the company’s goodwill impairment charges. Stratasys nearly paid $1 billion in the last quarter in goodwill write-offs and expects the payments to continue.
The entire sector is struggling with profitability and the added pressure of goodwill charges will further hurt Stratasys cash position going forward. In addition, the expiry of patents has opened the gates for many new companies. Over the last few months, many small companies have entered the market and the increasing pressure is further putting downwards pressure on profit margins. With Hewlett-Packard (HPQ, Financial) yet to enter the market, Stratasys looks like a bad buy despite the plunge.
The entire 3D printing industry is currently worth around $6 billion. The industry is not big enough to accommodate so many companies, and the slowdown in sales should continue. Hence, the likes of Stratasys and 3D Systems still look expensive, and investors should avoid these stocks going forward.
Conclusion
Despite the recent plunge, Stratasys looks overvalued; the entire industry is trading at a premium. With the sector witnessing a widespread slowdown in sales, these companies don't deserve the high valuation. Although Stratasys may appear cheap due to its plunge, it is a value trap, and investors should avoid the stock. Investors who want to invest in the 3D printing sector should wait for a better entry point.
