3D Systems (DDD, Financial) was on a great run in 2017 as the stock had risen considerably on the back of several rumors. While the rise was impressive, it set 3D Systems up for failure as the company has a record of sharing bad quarterly results. With the stock having appreciated roughly 20%, 3D Systems had to deliver an outstanding quarter to keep the rally alive. However, the company’s earnings report made it certain that the stock will fall back under $15 soon enough.
3D Systems released its quarterly earnings last month. It reported fourth-quarter EPS of 15 cents, beating the analysts’ estimates by 2 cents. On the earnings front, 3D Systems’ revenue came in at $166 million, down almost 10% from year-ago levels. The huge revenue dip was unforeseen as analysts were expecting the company to report revenue in excess of $176.8 million. It is no surprise that 3D Systems has crashed almost 30% since the earnings report.
While the acquisition rumors did take the stock to $17 at one point, 3D Systems has consistently struggled to stay over $15. Expecting 3D Systems to continue rising through the earnings report was naïve as the chances of 3D Systems getting acquired are really slim and the company’s fundamentals haven’t improved much to justify the rise.
Given the cutthroat competition in the 3D printing industry, the chances of 3D Systems getting acquired are slim. Also, peers like voxeljet (VJET, Financial) are fundamentally superior and have a higher chance of getting acquired. Betting on 3D Systems' acquisition doesn’t make sense and neither did the recent rally.
Conclusion
Moving forward, investors should be looking for opportunities to short the stock. If 3D Systems bounces back to near $17 in the near future, I would recommend that investors short it. As of now, I don’t see a favorable risk/reward ratio for shorting the stock and would recommend investors to stay on the sideline and wait for an opportunity to present itself.
The stock is definitely not a buy as the chances of it getting acquired are slim, and its fundamentals don’t indicate that the stock will move higher in the near future. 3D Systems is a strong sell.
Disclosure: No position.
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