As 3D Systems (NYSE: DDD ) prepared for this morning's earnings report, we Fools sounded a note of cautious optimism.
Blake Bos explained the long-term value of combining consumer-friendly product prices with high build quality and pleasant design. 3D Systems has plenty of competition, but few can match that magic formula today: "The comparisons were cheaper but, in my opinion, of far lower quality," Blake said. "One looked similar to a Rep Rap project built in someone's garage, and the other was similar, but in a spot-welded sheet metal enclosure. Hardly a compelling choice for the entry-level 3-D printing customer who 3D Systems is targeting with the Cube."
In the end, Blake noted that the stock could use a more appetizing entry point. "Ahead of Monday's earnings, I think what investors should really hope for is a strong pullback," he said. "This is a multi-decade long story that's yet to be told, and I'd like nothing more than to be able to participate at a more reasonable price."
My own earnings preview pointed out that the company often beats earnings targets, but it wouldn't take much of a disappointment to trigger a massive share price drop. "There's no particular reason why it would happen right now, but serious investors must consider the possibility," I said. "For the love of money, don't buy a pack of short-dated call options right now. Give the company some time to grow into its breeches."
You know what happened. 3D Systems beat earnings estimates by a penny, exactly as predicted. But the report wasn't the world-beating success you might expect from a stock rising 38% in the last three months and 135% over the last year.
And so the stock plunged as much as 20% in early morning trades. Direct rival Stratasys (NASDAQ: SSYS ) plunged 10% on no news of its own, and relative newcomer ExOne (NASDAQ: XONE ) suffered a 6% haircut. Stratasys is scheduled to report earnings next week and I'd expect the first report from ExOne as a publicly traded company in April. But nervous investors saw 3D Systems' drop as a warning sign for the entire industry. These are the breaks when you're investing in widely misunderstood growth stocks, where the market is still being defined.
All three of these plunging stocks have recovered nicely as investors started looking past the sudden shock of 3D Systems' terrific growth, but you can still pick up shares of that stock at a 5.4% discount. ExOne even bounced back into positive territory for the day.
Reckless investing is always a bad idea, but doubly so in super-volatile markets like the burgeoning 3-D printing sector. I would urge you to take a long, hard look at this sector and take measured action on sudden discounts like this one. Going all in might work at the poker table, but it's not a winning strategy for growth investors.
3D Systems is at the leading edge of a disruptive technological revolution, with the broadest portfolio of 3-D printers in the industry. However, despite years of earnings growth, 3D Systems' share price has risen even faster, and today the company sports a dizzying valuation. To help investors decide whether the future of additive manufacturing is bright enough to justify the lofty price tag on the company's shares, The Motley Fool has compiled a premium research report on whether 3D Systems is a buy right now. In our report, we take a close look at 3D Systems' opportunities, risks, and critical factors for growth. You'll also find reasons to buy or sell, and receive a full year of analyst updates with the report. To start reading, simply click here now for instant access.