This Just In: 3D Systems Corporation Gets Downgraded (But Should You Care?)

Merrill Lynch gives 3D Systems an "F".

Feb 24, 2014 at 6:15PM

At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.

But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our supercomputer tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

Speaking of the best...
Investors in 3-D printing star 3D Systems Corporation (NYSE:DDD) are wearing sackcloth and gnashing teeth today, traumatized by the fact that Merrill Lynch just downgraded the company's stock to underperform from buy. But should they be?

According to Merrill, 2014 is the year that organic growth will peak at 3D Systems Corp. While it's possible the company will continue to grow revenue in the years to come, investors are likely to see profit margin collapse as the company plays "catch-up" -- investing in niches where rivals ExOne (NASDAQ:XONE), Stratasys (NASDAQ:SSYS), and voxeljet (NYSE:VJET) have an edge.

More dangerous still, Merrill worries that 3D Systems will be tempted to "buy growth" -- spending money on acquisitions that will keep its revenue rising, but with little profit dropping to the bottom line. The Merrill analyst warned that if 3D Systems overpays for its acquisitions, or encounters difficulties integrating its new prizes into its own business, the revenue growth the company enjoys could come at the cost of dwindling profit.

To Merrill, this all adds up to a strong case for selling the stock, and taking what profit remains after 3D's stellar 2013 performance and this year's 20% decline. But is Merrill right?

Let's go to the tape
Yes. Merrill Lynch may very well may be right.

Here at Motley Fool CAPS, we've been tracking the performance of this banker's stock picks for close to eight straight years now. We've discovered that over the course of more than 950 buy and sell calls, Merrill has racked up a record of outstanding performance relative to its peers. On average, nearly 54% of its recommendations turn out right. (A 54% accuracy rating is harder than it looks. It's good enough to outperform about 95% of the investors on the planet.)

Merrill has also outperformed the S&P 500 by a good 21 percentage points per pick over the last eight years. A few examples:


Merrill Lynch Says:

CAPS Says:

Merrill Lynch's Picks Beating (Lagging) S&P By:

3D Systems



32 points




13 points




(64 points)

Prior to making today's underperform call, Merrill Lynch soundly outperformed the market with its prior endorsement of 3D Systems. It's beaten the market with 3-D printing rival Stratasys as well -- underperforming only when it comes to a company tangentially related to the 3-D printing sector, former Stratasys partner Hewlett-Packard.

In short, if you're going to take advice from any professional banker on whether to buy or sell 3D Systems, Merrill Lynch is probably a good place to start.

One final thought
This is doubly true in the case of 3D Systems, where the stock's valuation is so distressingly high already. Priced at an astounding 172 times trailing earnings, and a nearly as expensive 166 times free cash flow, 3D Systems isn't just priced for perfection. It's priced beyond perfection.

Even if everything goes right for this stock, even if 3D Systems succeeds in growing earnings at the nearly 20% annual rate of growth that Wall Street projects, there's just no way a stock with a double-digit-growth rate deserves a triple-digit P/E.

3D Systems is overpriced, and I believe Merrill Lynch is right that it will underperform the market. 

3-D printing stocks won't be overvalued forever
For the first time since the early days of this country, we're in a position to dominate the global manufacturing landscape thanks to a single, revolutionary technology: 3-D printing. Although this sounds like something out of a science fiction novel, the success of 3-D printing is already a foregone conclusion to many manufacturers around the world. The trick now is to identify the companies -- and thereby the stocks -- that will prevail in the battle for market share. To see the three companies that are currently positioned to do so, simply download our invaluable free report on the topic by clicking here now.

Rich Smith has no position in any stocks mentioned. The Motley Fool recommends 3D Systems, ExOne, and Stratasys. The Motley Fool owns shares of 3D Systems, ExOne, and Stratasys. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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