3D Systems Corp. (DDD, Financial) has been on a terrific run in 2017 with the stock up almost 30% year to date. Although the company had a great 2016, appreciating over 52% throughout the year, it appears the stock is already on track to surpass last year’s run. While the company’s fundamentals have not changed, 3D Systems rallied on the back of strong acquisition rumors in 2017.
Given that 3D Systems in still unprofitable and has hit the growth ceiling however, I think investors should use the current rally to exit their positions. I do not expect the stock to perform as nicely as it did in 2016, which is why I think it is a sell.
3D Systems is scheduled to report its next quarter earnings in March. According to Yahoo Finance, the company is expected to post earnings of 13 cents, down from 19 cents it posted in the year-ago quarter. On the revenue front, the company is expected to hit $177.15 million in sales, signifying a 3.4% decline.
In addition, the company is expected to report a 3% drop in sales for the current fiscal year, which further indicates the company is struggling to grow in a highly competitive industry.
Given the number of headwinds, I think the chances of 3D Systems being acquired are really slim and investors should avoid the stock going forward. Investors should use the current rally to exit their positions.
In addition to cut-throat competition, 3D Systems is struggling with profitability. The company’s GAAP (generally accepted accounting principles) earnings have been negative and have stayed that way for over two years. Yes, it did appreciate 52% in value in 2016 despite bad earnings, but the reasons behind the rally, like the departure of its CEO, were mostly nonrecurring, which is why I do not expect the stock to perform well from here on out.
Conclusion
Given 3D Systems’ current struggles with falling sales and shrinking profits, I do not think any company will be willing to pay a premium for the stock. With the stock already having rallied on the back of acquisition rumors, I think the upside is currently very limited and the risk-reward ratio is highly unfavorable for long positions. Hence, investors should consider selling the stock.
Disclosure: No position.
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