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3D Systems Does Exactly What Fools Said It Might Do

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.

Read/Post Comments (7) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 25, 2013, at 2:43 PM, mhogan525 wrote:

    How do you not mention that the stock did a 3-2 split today which contributed to its steep drop in price? I agree that DDD can still be picked up at a discount, but not mentioning such a big event is really misleading...

  • Report this Comment On February 25, 2013, at 2:48 PM, leviek wrote:

    You will excuse me if I point out to all of you at Motley Fool that today's report was about as strong as could have been expected but that the coverage of the report by TMF was so shabby as to predicate a market drop of enormous proportions based on information from your analyst that was shocking to the street.

    Estimated non-gap EPS growth for 2013 is as high as 37% on top of a powerful 2012 report. This is preliminary and I believe could be adjusted higher as companies are reticent to promise the moon in the first quarter.

    Mr. Chatsko's erroneous report on profit margins for this year shows a complete lack of knowledge on his part. I wonder what an investor would do if they sold on that false information. Covering up the mistake reminds me of "Watergate".

    By the way, the stock is only selling at about 31 times 2013's non-gap earning's guidance. This, for a company that may lead the United States and the world into the 3D printing revolution.

    I purchased Intuitive Surgical in 2004 for about $18 and went through many fits and starts as the company grew into the $570 stock it is today. Considering Motley Fools championing of the 3D printing market it is just surprising to me how little your analyst knew about today's report and how quickly he could blow it.

  • Report this Comment On February 25, 2013, at 2:51 PM, leviek wrote:

    By the way, another ridiculous statement made is that some of the drop from Fridays price is because of the 3 for 2 split. Excuse me, most of the drop in price reflects the 3 for 2 split. If your analyst didn't blow it, almost all of the drop would have been reflecting the split.

  • Report this Comment On February 25, 2013, at 2:51 PM, XMFBiggles wrote:

    @ leviek -

    The stock was down 16% -before- any articles were published by the Fool. While there may have been errors in one of the reports, it's not correct to claim that this one report was the source of the drop.

    - Alex

  • Report this Comment On February 25, 2013, at 4:53 PM, SkepikI wrote:

    ^ or the phase of the moon...... to say nothing of the dog howling at it.... or the ridiculous 80 +P/E or the fantastical claims for early stage technology...or, or, or.

    Putting INVESTMENT $ into a young company and young technology is a high risk gamble. Some rationality at 10, even 20 P/E if the growth story looks sustainable. at 80? high stakes poker.

    Interestingly enough for me, it appears to be into territory where I may again be considering it an INVESTMENT.

  • Report this Comment On February 25, 2013, at 5:35 PM, TMFZahrim wrote:

    The 3:2 split did not cause DDD shares to fall. I'm looking at split-adjusted prices throughout this article, and one stock's split would hardly trigger panic across the 3D printing sector anyhow.

    Stock splits don't move share prices. It's a zero-sum game.


  • Report this Comment On February 26, 2013, at 2:16 PM, mhogan525 wrote:

    NOT ONCE did you mention in this article that you were referring to split-adjusted prices. If I am a reader and did not know that the stock had split, I would think DDD just took a nose dive and it is a "warning sign for the rest of the industry" according to your article.

    Absolutely ridiculous...any financial website that lets incomplete and deceiving articles like this be posted should not be taken seriously. It's really disappointing when someone who isn't even in the financial sector is correcting someone who writes for a financial website....

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