Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
While volatility is par for the course in 3-D printing stock land, there was more action than is typical among this group today. Shares of industry juggernaut 3D Systems (NYSE: DDD ) ended the trading down 5.4% at $85.63, while those of Sweden-based metals 3-D printing company Arcam were in the green 7.8% at $39.3 when the bell rang.
Ratings flip-flops among the industry leaders
High-flyer 3D Systems' drop was due to a rating downgrade to "neutral" from "outperform" by Credit Suisse. The reason cited for this action was valuation, with Credit Suisse stating that 3D Systems has become too richly valued relative to its main peer and competitor Stratasys. Credit Suisse maintained its price target of $90 on 3D Systems.
Meanwhile, Credit Suisse upgraded Stratasys to an "outperform" rating from "neutral," while also raising the stock price target to $144 from $128. As with 3D Systems, relative valuation was cited as the reason. Shares of Stratasys closed up 2.4% at $123.45.
Stratasys shares lost 7.3% in last week's trading after the company announced that it anticipated 2014 earnings to fall short of analysts' estimates, citing an expected rise in operating costs. So today's pop in Stratasys might have been unrelated -- or at least not solely related -- to today's rating upgrade, but rather a partial bounceback caused by investors believing the stock was oversold last week.
3D Systems and Stratasys are the industry's two largest players and have very similar revenue profiles, with the companies generating $460.2 million and $440.5 million in sales, respectively, over the trailing-12-month period. It's not surprising that Credit Suisse noted the growing divergence in valuation between these two companies -- as I just published an article two days ago (3-D Printing Stocks: After Last Week's Big Dips, How Do They Stack Up by Valuation?) noting the same thing. At that time, 3D Systems' price-to-sales and forward price-to-earnings ratios were 36% and 30% higher than Stratasys'.
Granted, 3D Systems is profitable on a GAAP basis, while Stratasys is not, but that's due to Stratasys' late 2012 megamerger with Objet Systems. Stratasys has historically been profitable, and analysts expect it to return to profitability this year. Additionally, 3D Systems has inked some interesting partnerships of late -- including with Google's Motorola unit for Project Ara to create a large-scale 3-D printing manufacturing platform capable of producing customizable open-source modular smartphones, and with Hershey to produce 3-D printed edibles and a new class of 3-D printers for edibles. So some valuation differential is justified, in my opinion. That said, the current valuation differential seemed a bit much to me -- apparently Credit Suisse agrees.
Stock split for Arcam
Arcam shares soared early in the day and closed up 7.8% at $39.30 when the trading day came to a halt. This was no doubt due to a favorable reaction among investors to Arcam's 4:1 stock split, which the company had previously announced in a Jan. 16 news wire.
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