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Bear Of The Day: 3D Systems (DDD)

Daniel Laboe

Today’s bear of the day may come as a surprise to some investors considering the sector’s enormous potential. 3D printing has become essential for many businesses, whether it is to design a prototype or to manufacture end-use parts.

Leading 3D printing firm, 3D Systems (DDD), was able to profit off the initial excitement in the sector but has recently been faced with harsh headwinds that have turned this once profitable company into a cash-hemorrhaging body. Analysts have been adjusted earnings down significantly over the last 60 days as more negative news comes to light, pushing this stock down to a Zacks Rank #5 (Strong Sell).

The 3D printing industry is an ever-changing sector and firms do everything they can to keep up with shifting business needs. 3D Systems seems to have fallen behind the curve, with the firm facing systemic issues that it may not have the runway to adjust. Their R&D budget may be stretched too thin to continue to meet changing customer requirements.

DDD has been burning a proliferating amount of free-cash-flow and has been borrowing at increasingly higher rates to keep its head above water. The firm has seen a flat to negative top-line growth over the past 4 years with deteriorating margins.

This past quarter 3D Systems reported an enormous miss on its top and bottom line. This miss was instigated by a technical issue with one of its printers which completely halted some of its distribution. This issue is expected to spill over and negatively affect this current quarter’s results as well.

Profits and margins are expected to continue to fall over the next couple of years as this firm attempts to keep from drowning. 3D printers are a costly business expense, and in the case of an economic decline, there would undoubtedly be softer demand. The economic cycle is coming to an end, according to key economic indicators, which could drive this firm into bankruptcy if both the credit markets and demand for 3D printers regress.

Performance

Over the last 5 years, DDD has lost over 85% of its value and analysts are saying that this stock remains overvalued. The negative rhetoric radiating from 3D Systems seems to have no end. Since the beginning of this year, DDD is down over 19% while the S&P 500 reaches new highs.

 

Take Away

3D Systems may still have life if it is able to overcome its current headwinds. As of now, DDD looks to be going nowhere but down with systemic issues that are likely to be mended in the near term. Its excessively high beta of 2 is doing 3D Systems no favors in this volatile market. This firm needs to focus on maintaining margins and turn cash flow positive if they want to stay afloat.

 

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