Stratays Ltd. Is Down 33%: Is It Time to Invest in This 3-D Printing Company?

Stratasys Ltd. (NASDAQ: SSYS  )  reported solid first-quarter earnings last week, but shares have yet to rally on the results and remain down 33% year to date. Stratasys shareholders and interested investors can find an excellent breakdown here in this deep dive into Q1 earnings.

Today, I'm going to focus on the valuation of Stratasys to determine if it looks like a good investment from a relative valuation standpoint after the recent sell-off.

Relative valuation... what is that?
Before delving into relative valuation, it's important for all investors to understand what causes a company's stock price to increase or decrease 

For most investors, they'd typically like to see a stock price go up, but what specifically causes a stock price to increase? For simplicity's sake, two criteria generally affect share price over the short and long term -- company performance and how the stock market feels about that performance.

Image courtesy of Stratasys

A company's performance is looked at through a variety of metrics, but sales and earnings are the most popular for a company like Stratasys. For example, Stratasys generated $538 million of sales over the last 12 months and has grown those sales by 37% a year over the last five years. For this awe-inspiring performance, the stock market has decided investors have to pay eight dollars for one dollar of sales at Stratasys; in other words, the company has a price-to-sales multiple of eight. When we multiply the price-to-sales multiple by yearly revenue, we get Stratasys' market capitalization of $4.4 billion, or $89.25 per share. 

As investors can see, the price is equal to how the company is doing (sales) multiplied by how the market feels about those results (price to sales). The concept that investors really want to focus on is the fact that it takes a company months or years to change operating results, but feelings can change overnight. So, in both the short and long terms, how the market feels can be a very large driver of a stock's price.

There are several ways to calculate a relative valuation, but for this case we'll look at a scenario in which multiples contract due to decreased expectations from the stock market. Then we'll look at what rate of revenue growth would be needed to offset the contraction of the multiples and still generate a satisfactory return for shareholders. 

Enough already! Is Stratasys a good buy or not?
Now that investors are familiar with how a company's stock price is determined from day to day, the relative valuation can commence. In the video below, Motley Fool analyst Blake Bos will dive head first into a scenario that could give investors an 8%-12% yearly return over the next five years, and then explain why he thinks it could be a likely scenario. He'll also tell investors why he's still not sure about investing in Stratasys today, and offer insight into how investors should look at the company. 

Are you ready to profit from this $14.4 trillion revolution?
Let's face it, every investor wants to get in on revolutionary ideas like 3D printing before they hit it big. Like buying PC-maker Dell in the late 1980s, before the consumer computing boom. Or purchasing stock in e-commerce pioneer in the late 1990s, when it was nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hyper-growth markets. The real trick is to find a small-cap "pure-play" and then watch as it grows in EXPLOSIVE lockstep with its industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 TRILLION industry. Click here to get the full story in this eye-opening report.

Read/Post Comments (0) | Recommend This Article (5)

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.

Be the first one to comment on this article.

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: 2955511, ~/Articles/ArticleHandler.aspx, 9/4/2015 7:27:57 PM

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...

Blake Bos

The Motley Fool's industrials analyst, I specialize in 3-D printing and also do my best to stay up-to-date in the fields of robotics and oceanic transportation. Follow me on Twitter, Google+, and/or Facebook below for the most important 3-D printing industry developments and other great stories.

Today's Market

updated Moments ago Sponsored by:
DOW 16,102.38 -272.38 -1.66%
S&P 500 1,921.22 -29.91 -1.53%
NASD 4,683.92 -49.58 -1.05%

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

9/4/2015 3:59 PM
SSYS $28.39 Down -0.53 -1.83%
Stratasys CAPS Rating: ****