So far it has been a great year for equities. Even after this week’s dip from the geopolitical headlines regarding China tariff meetings, stocks are strong in 2019 and we are barely off the all-time highs. But not all stocks are happy about it. Take 3D Systems (NYSE:DDD) for example. DDD stock came into the earnings up only 4%, while the S&P 500 is up 15% year to date.
Source: Image via 3D Systems
This week has been especially brutal for DDD stock. Yesterday it fell 4% ahead of earnings then fell another 15% after hours. Management reported earnings after the market closed and Wall Street hated them.
There was not much to celebrate, so the selling is justified. They missed on all metrics, which left the bulls no reason to buy or defend the stock. Earnings fell short of expectations by nine times. This was also a 200% deterioration from last year. Furthermore, they missed sales by 7% and that too was a 38% decline from last year.
So clearly the trends are alarming, which is why the stock is reverting to lows. So the question here becomes a matter of finding a floor. Is this dip in DDD stock an opportunity to buy? The safe answer is no.
This is not the same as saying short it. It just lacks the catalyst that I need to bet for upside. The only reason it bottoms here is purely based on hope and that is not a strategy I want to employ here.
If I already own the shares and haven’t sold them yet, then it’s perhaps too late to do so on this dip. Maybe it catches the eye of an activist investor or some analyst comes to its defense. But I definitely need someone to show me a reason to expect a rally in 3D Systems stock.
Don’t label me a hater. I am one who loves the idea of having DDD’s technology in my house. In fact, I’ve been on record saying that eventually, we will all have a 3D printer appliance at home like we do microwaves. I see a day where we buy schematics to print the parts we need instead of buying the parts.
Bottom Line on DDD Stock
But for now, clearly, DDD needs help figuring out a way to make it a financially viable model and therein lies my hesitation.
DDD came into its earnings event up only 4% compared to Stratasys (NASDAQ:SSYS) and ExOne (NASDAQ:XONE ), which are up 38% and 25%, respectively, for the same period. While none of their charts are exciting, for some reason, those two are outperforming the indices this year, while 3D languishes in negative territory after today. This is worse for the 12-month period as DDD is down almost 20% when the other two are up as much or more. In the long run, the whole sector is languishing red which adds to my argument today.
Fundamentally, DDD stock sells inline with its competitors from a price-to-sales perspective. So until they become profitable, the lack of sales growth is a critical lid on the stock. It needs to start growing sales and last night’s report told the opposite story.
3D Systems stock is clearly broken and the company could be broken too. The onus is squarely on management to convince the investors otherwise.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.
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