This Just In: Stratasys, Ltd. Wins a "Buy" Rating (but Should You Care?)

JPMorgan thinks Stratasys is a winner, but says 3D Systems is a dog.

Mar 24, 2014 at 7:14PM

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.

And speaking of the best...
Precisely one month ago today, analysts at Bank of America/Merrill Lynch sounded the alarm on 3D Systems Corporation's (NYSE:DDD) growth rate. Warning that 2014 will be the start of a long slide for the company's profitability, and that further revenue gains will depend largely on the company's willingness to overpay for acquisitions, Merrill in effect declared "everybody out of the pool," and advised investors to sell the stock. The stock is down 26% since...

And one month later, it's happening again.

This morning, analysts at Merill's fellow megabanker, JPMorgan, paired an endorsement of 3D-rival Stratasys (NASDAQ:SSYS) with a repeated warning about 3D Systems itself, saying the stock "still looks richly valued" even after the past one-month 26% drop in 3D's share price.

In stark contrast, JP argues that "growth prospects for SSYS and the broader 3-D printing/additive manufacturing space remain compelling," and that Stratasys is a "best-in-class pure-play and therefore a core holding for tech growth investors." Although Stratasys has suffered nearly as much as 3D itself from the flight from "additive manufacturing" stocks, falling 21%, and although JP thinks Stratasys will only recover about 17 of these percentage points over the course of the next 12 months (rising to $125), the analyst nonetheless argues that while 3D Systems should be "avoided," Stratasys is a stock to "buy."

But is JP Morgan right?

Let's go to the tape
Possibly not. You see, while Merrill Lynch boasts a sterling record for making smart stock picks (better than 54% accuracy on its recommendations over the past eight years and an average outperformance-of-the-market of 20 points per pick), JPMorgan's record is a bit iffier.

Here at Motley Fool CAPS, we've been tracking JP's performance for about as long as we have Merrill Lynch's, you see. But what we've discovered is that while Merrill gets the majority of its stock picks right, JP actually gets most of its recommendations (50.3%, to be precise) wrong. This year alone, for example, JP has picked such poor performers as:

 

JPMorgan Said

CAPS Says

JPMorgan's Picks Lagging S&P by

Intel

Outperform

****

4 points

Autodesk

Outperform

****

7 points

Canadian Solar

Outperform

**

16 points

And in contrast to Merrill Lynch, which had a couple of past positive picks for 3D Systems and Stratasys under its belt when it made its negative forecast last month, JPMorgan has literally no record of success in three-dimensional printing stocks to argue that it knows what it's talking about when saying 3D Systems is overvalued, but Stratasys isn't.

Go ahead. Scan the 1,441 stock recommendations that we have on file for JP over the past eight years. You won't see 3D or Stratasys mentioned even once.

Distinctions without differences
This lack of a track record in 3D is especially troubling, given the advice JPMorgan is peddling today.

To hear JP tell it, investors should avoid 3D Systems because it is "richly valued" at 126 times earnings. And I agree. The stock is clearly overpriced -- but we already knew that from Merrill Lynch.

But in fact, the recent popularity of the 3-dimensional printing sector has left most such stocks trading for prices that can be called "richly valued." Valued on sales, for example (because not all of these stocks are profitable enough to have useful P/E ratios), JPMorgan favorite Stratasys sells for a 10.8 multiple. That's cheaper than the 11.4 price-to-sales ratio at 3D Systems, true. It's cheaper than the 13.2 P/S at ExOne (NASDAQ:XONE), and much cheaper than the 21 multiple that new IPO Voxeljet (NYSE:VJET) carries.

But it's not "cheap." And given JPMorgan's lack of a record in this industry, I'd think twice before listening to its advice, and assuming Stratasys is cheap enough to buy.

America's plan to take the crown back from China
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 does not own shares of, nor is he short, any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 378 out of more than 140,000 members. His opinions do not always -- or even often -- match those of his fellow Fools.

Need proof? The Motley Fool recommends and 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.

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