Why 3D Systems Corporation Stock Dropped More Than 5%, While Arcam AB (ADR) Stock Rose Nearly 8% Today

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.

You can read more about this topic here.

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Read/Post Comments (9) | Recommend This Article (9)

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 22, 2014, at 1:03 AM, Gaugamela wrote:

    The split was 4:1 rather than 1:4.

  • Report this Comment On January 22, 2014, at 7:03 AM, foolfafa wrote:

    Totally disagree with you and CS. DDD introduced 15 new products in Euromold and 12 new products in Vegas. I believe SSYS introduced a total of 5 or less! So DDD will surely widen the revenue gap this year!

  • Report this Comment On January 22, 2014, at 7:27 AM, smacunalum wrote:

    It's all noise!

  • Report this Comment On January 22, 2014, at 8:37 AM, TMFMcKenna wrote:

    @Guagamela,

    Yes, you're correct; I inverted the numbers, and will get them corrected. Thanks.

    @foolfafa,

    DDD has certainly been outshining SSYS over the past yr with new product launches, partnerships, and a key acquisition (Phenix Systems, for metals capabilities). SSYS needs to ratchet up its game, as my article referenced in this pieces mentions. How things will stand from a revenue basis in a year from now is anyone's guess.

  • Report this Comment On January 22, 2014, at 9:27 AM, MarketMaven wrote:

    How quickly everyone forgets the lessons learned in the past. The entire 3-d printing market is currently one of the leaders in this massive asset bubble reinflated by the federal reserve. These valuations are about 3-5 years ahead of themselves and that is assuming everything goes as planned.

    Good luck if your buying at these levels. Don't listen to the cheerleaders or the hype. Caveat Emptor...

  • Report this Comment On January 22, 2014, at 2:42 PM, Haise wrote:

    Analyst rating and stock splits are no-news events. Maybe that's why DDD is up over 3% the next day.

    Or maybe stocks simply fluctuate.

  • Report this Comment On January 22, 2014, at 5:04 PM, TMFMcKenna wrote:

    @Haise,

    I don't disagree with you -- and informed investors should ignore the noise. That said, we report on notable stock price moves, so our readers know the "why" behind them. Not all investors are constantly checking ticker feeds and news on their holdings. So, if they see a 5% or 10% move and wonder why, they can often find their question answered by The Motley Fool.

    Actually, the stock split on Arcam did come as a shock to some, with some (understandably) panicking as it "appeared" the stock price plummeted 70% yesterday. If you read my piece (link at end of this piece), you'll learn why. A couple readers even wrote in to thank me as they had no clue what happened.

  • Report this Comment On January 23, 2014, at 5:45 PM, timekeep wrote:

    Arcam 4:1 stock split was agreed to by Swedish share holders early Dec 2013. Arcam stock is probably rising because of financial report due out early Feb 2014.

  • Report this Comment On January 24, 2014, at 1:19 PM, fickertk wrote:

    This is the issue with investing in growth stock. Out of the blue some analyst makes a ridiculous subjective valuation and the stock goes in the tank. Yes we are investing fore the long term but in my little world takes a hit every time. No matter how good the company, product, management, balance sheet it still takes a hit.

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