Why Stratasys, Ltd.'s Stock Plummeted and Why It Doesn't Matter

Shares of Stratasys (NASDAQ: SSYS  ) took a beating today because the 3-D printing company released its 2014 full-year-earnings guidance below analyst expectations, sending shares down as much as 12% during the session. While this may seem like troubling news for Stratasys investors, it's quite welcomed news for the Foolish long-term investor.

What went wrong
For 2014, Stratasys expects to earn $660 million-$680 million in revenue, which represents an increase of roughly 40% over 2013's expected results, and is also above the $656 million in revenue analysts are expecting. It was the company's earnings-per-share guidance that made the stock's wheels fall off. Analysts were expecting full-year earnings per share to come in around $2.33, but Stratasys only expects to earn between $2.15 and $2.25 in adjusted earnings per share. To put this miss in perspective, the midpoint of $2.20 per share means that Stratasys' earnings estimate was only off by less than 6% from the analyst consensus.

When missing is good
Stratasys missed analyst expectations because the company would rather reinvest into its business than show more profits in the short term. As a result, Stratasys anticipates that its operating expenses will rise significantly – primarily driven by increased investments in sales and marketing initiatives, as well as higher R&D spending to support new product development and innovation.

In addition, Stratasys plans on spending between $50 million and $70 million in capital expenditures, which includes "significant investments" to build out its manufacturing capacity – a healthy sign for future expected growth. In other words, Stratasys is working to solidify its long-term positioning and the market is punishing it.

Two bright spots
As investors fixate on the headline story that Stratasys lowered its guidance, they seem to be overlooking the fact that the company is beginning to realize synergies from its merger with Objet, and its recent MakerBot acquisition is performing beyond expectations. Stratasys expects its organic growth rate, which adjusts out acquisitions, to be at 25% for the year, and MakerBot will be accretive to earnings by the end of the year. The organic growth rate is particular encouraging, considering the 3-D printing industry is expected to grow at around 19.3% a year through 2021, becoming a $10.8 billion industry. Based on these figures, investors can expect Stratasys to gain market share in the year ahead.

Putting it in perspective
This is what today's decline looks like compared to the last two years of Stratasys' stock performance:

SSYS Chart

SSYS data by YCharts

Because Stratasys' valuation is stretched on paper, any negative divergence from its lofty growth expectations can result in stock swings like we're experiencing today. However, when you think it about it from a long-term perspective, today's decline is merely a blip.

Sticking with winning management teams
I always find it amusing when Wall Street punishes a company for wanting to invest in its own long-term-success story. If a business is only focused on playing the short-term game of meeting and exceeding Wall Street's expectations, it would often have to make trade-offs that could ultimately end up hurting its long-term potential. In the eyes of a Foolish investor, Stratasys' decision to reinvest into its business is a positive development because it shows that management remains more dedicated to the longer-term success of its business than pleasing Wall Street.

At the end of the day, lowering earnings guidance is not the same as lowering its revenue outlook – a sign that could often spell trouble. Today's stock plunge may feel painful, but in a decade from now, this may feel like just another bump in the road for a company with the right forward-looking focus.

One must-own stock for 2014
There's a huge difference between a good stock, and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Read/Post Comments (1) | Recommend This Article (13)

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 January 15, 2014, at 10:01 AM, TomLansford wrote:

    Thank you MF for your sanity. Let the market punish them for investing in the future. Everything I have observed about SSYS (first hand) tells me that the management understands very well their business. IMO this company will be doing just fine in the future.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2795089, ~/Articles/ArticleHandler.aspx, 8/31/2015 2:49:08 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Steve Heller

Covering 3-D printing at the intersection of business, investing, and what it means for the future of manufacturing. Follow me on Twitter to keep up with the ever-changing 3-D printing landscape by clicking the button below.

Today's Market

updated 2 days ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:00 PM
SSYS $30.02 Up +0.81 +2.77%
Stratasys CAPS Rating: ****