Here's Why 3D Systems Tanked... Again.

"A cathedral, a wave of storm, a dancer's leap, never turn out to be as high as we had hoped." - Marcel Proust

3D Systems (NYSE: DDD  )  reported its fourth-quarter and full-year 2012 earnings and, for the second time in three days, things got downright ugly for the additive manufacturing specialist.

Of course, just last Thursday I wrote to explain why shares of 3D Systems had fallen as much as 10% in a single session; to be sure, the culprit at the time appeared to be a combination of good old-fashioned volatility and wider industry valuation concerns. What, then, was so bad in 3D Systems' results to justify Monday morning's 15% haircut?

When records aren't good enough
When all was said and done, the company set new records by growing quarterly revenue by 45.4% to $101.6 million, and full-year sales increased an even more impressive 53.5% to $353.6 million. In addition, the company set a new high mark for gross profit with 2012 non-GAAP earnings per share of $1.25 and GAAP earnings of $0.71.

Naturally, this growth wasn't enough to satisfy investors as fourth-quarter revenue narrowly missed analyst estimates which called for $103.9 million. In addition, the company issued light guidance and now expects 2013 revenue to come in between $440 million and $485 million with non-GAAP earnings per share from $1.00-$1.15 -- after accounting for its recent three-for-two stock split, of course. While this means solid revenue growth between 24% and 37% this year, even at the high end that looks downright sad compared to last year's 53.5% rise.

But that begs the question: Were investors asking too much of 3D Systems? After all, with regard to additive manufacturing, we're talking about an industry which has been around for decades -- albeit primarily serving specialty industrial segments up to this point -- and the fact that revenue growth of this magnitude is still possible simply boggles the mind. That said, even after Monday's pullback, shares of 3D Systems were trading hands for more than 75 times trailing earnings, so it's obvious plenty of optimism is still built into the stock. Even so, we need to remember the $0.71 EPS in the company's press release is not accounting for the stock split, and the company's split adjusted EPS is actually $0.43. This is a great lesson for investors not to just look at a price to earnings ratio online and take it for granted. 

Still, as I noted last week, the industry's incredible potential has some convinced 3-D printing could quite literally be the biggest thing since the Internet. Incidentally, that's why I think 3D Systems' primary competitor Stratasys (NASDAQ: SSYS  ) could be another solid winner over the long haul -- which is fantastic considering poor Stratasys found itself once again guilty by association and traded down by as much as 8% Monday morning.

To the patient investors go the spoils
In the end, it's fairly obvious our fickle market loathes being told to hurry up and wait, so it's no surprise that shares of 3D Systems pulled back given the miss. However, I'll reiterate now is not the time to panic and sell your shares of Stratasys or 3D Systems. To the contrary, nothing has happened to significantly change the long-term bull thesis for either company, so long-term investors shouldn't be shaken by the news.

So stand strong, my fellow Fools. The best days are yet to come for 3-D printing.

More expert advice from The Motley Fool
Care to learn more about 3D Systems? 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 (5) | Recommend This Article (11)

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 26, 2013, at 4:10 PM, durango58 wrote:

    The guidance was not "light." It was $1.50-$1.78 on the pre-split basis analysts were using...in other words, at the higher end of the range. Motley Fool contributors have been factually wrong on every post the last two days. An opinion is fine and even welcome. To misrepresent the numbers is inexcusable.

  • Report this Comment On February 26, 2013, at 4:19 PM, lynmar79 wrote:

    Steve, many of your fellow fools feel abandoned by TMF's. TMF's released 10 articles yesterday that were critical of 3D Systems in one way or another, and one article I know of released incorrect information negative to 3D Systems which inflammed many of your subscribers. Today there have been another slew of TMF's articles doing the same thing. Clearly David and Tom are no longer taking an active role in monitoring this once member friendly site, as I don't think they would subscribe to these piling on tactics. In fact, I no longer trust anything I read here and that's a shame. I hope things change.

  • Report this Comment On February 26, 2013, at 4:52 PM, TMFSymington wrote:

    @lynmar79, there was admittedly some confusion yesterday about the company's combined use of pre-split and post-split numbers in its press release (without clearly marking the numbers, save footnotes at the bottom of the page!).

    In fact, fellow Fool Blake Bos just posted a video to explain what happened at http://www.fool.com/investing/general/2013/02/26/why-shareho...

    With this in mind, @durango, you can rest assured the article above accounts for the 3:2 split in its EPS discussion.

    In the end, it was revenue guidance the market didn't like; after watching 3D Systems' incredible revenue growth of 53.5% in 2012, Wall Street was disappointed that the company's projected revenue growth called for gains of "only" 24% to 37% in 2013 (a calculation which wasn't affected by the split).

    Fool on!

    Steve

  • Report this Comment On February 27, 2013, at 2:35 AM, TangoXray7 wrote:

    Steve, you follow a recent trend on this site by using terms like "tanked" to describe the result of a simple stock split. It's abusive and ignorant, possibly malicious. I suggest you consider a CYA position because you are likely to be called to task for this nonsense as are your editors.

    You are not performing a service with this drivel.

  • Report this Comment On February 27, 2013, at 11:06 AM, TMFSymington wrote:

    @TangoXray7, don't worry; the above-mentioned drops in 3D Systems' stock price (Last Thursday and this Monday) were definitely not related to its recent split.

    To the contrary, those losses were incurred the good old-fashioned way.

    Steve

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