3D Systems: Here Is Your Buying Opportunity

Fresh off of a share split, 3D Systems (NYSE: DDD  ) continued to be taken lower as its fourth-quarter revenue came in slightly below analyst expectations. Looking beyond this short-term setback, the big story here is that 3D Systems' long-term investment thesis appears to remain intact. As a result, this punishing has inadvertently presented long-term investors with a great buying opportunity.

The pulse of business:

Segment

Q412 Revenue

Percent Change (YoY)

Percent of Total

Products

$68,757

64%

68%

Services

$32,814

18%

32%

Source: 3D Systems quarterly earnings press release. Revenue in thousands of dollars

For the quarter, the company reported a net income of $22.6 million on record revenues of $101.6 million, which represented a 45.4% year-over-year increase. The company's gross profit margin expanded 460 basis points year over year to 51.7%, indicating that sales growth has not come at the expense of profitability. For the full year, revenue grew 53.5%, fueled by a 90% year-over-year increase in product growth. Excluding acquisitions, 3D Systems reported 22.4% organic growth for 2012. All in all, these results look great on paper.

Falling short
Typical of many high-growth companies, expectations have likely gotten in the way of 3D Systems' long-term growth story. The company has projected 2013 revenues will range from $440 million to $485 million, representing a 24% to 37% increase from its 2012 results – a number far below last year's annual growth rate of 53.5%. The fact that the company trades with a P/E in the 70s, and its 2013 growth expectations are more or less in line with Wall Street expectations, justifies why we get a sell-off like today. Apparently, Wall Street would prefer if 3D Systems projected booming growth rates far beyond what the 3-D printing industry can actually support.

It comes with the territory
High-growth investors should be made aware that setbacks as a result of mismatched expectations are bound to happen from time to time. Over the long term, resetting these expectations are actually good for a company in 3D Systems' position because it increases the chances that it will be able to more easily please investors in the future. Obviously, this opportunity hinges on a company's ability to show continued signs of great progress.

Let's not forget
Investors absolutely love getting ahead of themselves when a technology as exciting as 3-D printing comes along and offers the promise of disrupting practically the entire manufacturing industry. The good news is that even though investors may become more timid on the prospects of 3-D printing, the incredible growth potential that 3-D printing offers to the world isn't going to change overnight. According to Wohlers Associates, the leader of 3-D printing related insights, it's expected that the 3-D printing industry will continue growing in the strong double digits in the coming years, and will eventually become a $6.5 billion industry in 2019. If you combine 3D Systems' 22.4% organic growth rate for 2012 with its revenue growth forecast for 2013, there's a good chance the company will grow faster than the industry average. Currently, investors do not seem to be focusing on the prospect of market share gains will be part of 3D Systems' future.

It's a marathon
High-growth investing often comes with a higher degree of volatility. Here at The Motley Fool, we believe taking a long-term view helps mitigate the short-term setbacks associated with high-growth investing. The fact of the matter is that 3D Systems increased its net income by 63.6% year over year and is now worth less than it was on Friday. Not to mention, the company is by far the most diversified 3-D printing investment around, which improves its chances of success over the long term. I've already put those valuation concerns aside, but the only thing I can say with certainty is that I won't be giving up on 3D Systems or the prospect of 3-D printing anytime soon.

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 (6) | Recommend This Article (12)

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 7:47 PM, somethingnew wrote:

    I've been a long time reader so I'm a little embarrassed to ask this but when you say "The company's gross profit margin expanded 460 basis points year over year to 51.7%" what does this mean, particularly what does the basis points mean and how is it calculated? I've read this in a number of articles on the Fool and I don't understand it.

  • Report this Comment On February 25, 2013, at 7:58 PM, TMFTopDown wrote:

    @somethingnew --

    1 basis point = 0.01%

    100 basis points = 1%.

    460 basis points = 4.6%.

    Hope that clears it up!

    --Steve Heller (TMFTopDown)

  • Report this Comment On February 25, 2013, at 9:25 PM, andrewupandabout wrote:

    Various variables this quarter are not living up to this stock valuation 3D Systems has. A needed correction has result however it has the potential to go much lower as the competition against DDD's latest consumer 3D printer is huge. Too much competition is not good for gross profit margins in any business/industry.

    Andrew

    3D Printing YouTube Channel:

    https://www.youtube.com/user/andrewupandabout

  • Report this Comment On February 26, 2013, at 3:06 AM, ScottCherf wrote:

    @Andrew

    When Lulz ships a printer with a 400 watt laser in it I'll take them seriously. Until that happens they're just building toys.

  • Report this Comment On February 26, 2013, at 3:31 AM, ScottCherf wrote:

    We got today's selloff because anyone holding DDD on 2/15 picked up a 50% increase in stock. Some folks sold the dividend today. That drives the price down. It's not that hard.

  • Report this Comment On February 27, 2013, at 12:27 AM, somethingnew wrote:

    @TMFTopDown

    Thanks! I understand it now.

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