Shares of 3D Systems (NYSE:DDD) jumped 29.2% in May, according to data from S&P Global Market Intelligence. The diversified 3D printing company's stock has been soaring in 2017 – it was up 51.9% through June 2.
For context, shares of it chief rival, Stratasys, climbed 8.6% in May and are up 67.8% in 2017. The S&P 500 returned 1.4% in May and has gained 9.9% so far this year.
We can likely attribute 3D Systems stock's powerful May performance to two Wall Street analysts raising their price targets and making some cautiously optimistic comments on May 4, the day after the company reported its first-quarter 2017 earnings.
For the quarter, 3D Systems' revenue increased 2.5% to $156.4 million, though only an estimated 0.5 to 1.5 percentage points of this growth was organic. (Organic revenue growth excludes revenue contributed by acquisitions made over the last year.) Adjusted earnings per share (EPS) jumped 20% to $0.06, while the loss per share on the basis of generally accepted accounting principles (GAAP) narrowed from $0.16 to $0.09. Cash generated from operations rose 7.2% to $19.4 million.
The market overreacted positively, in my opinion, to the analysts' actions. The Piper Jaffray analyst reportedly only raised his price target to $11 per share -- which was less than 3D Systems stock was trading at before the May run-up -- and maintained an underweight rating on it. The Jefferies analyst upped his target to $17.50 and maintained a hold rating on the stock. 3D Systems stock closed at $20.68 on Friday.
3D Systems' key quarterly metrics generally moved in the right direction. However, organic revenue was likely flat to barely higher compared to the year-ago quarter. (The company didn't provide enough information to calculate an exact organic growth number.) Earnings have largely been moving in the right direction because of 3D Systems' cost-cutting initiatives. Wringing inefficiency out of operations is a good thing, but sustainable earnings growth will ultimately only be driven by revenue growth. In the previous quarter (Q4 2016), 3D Systems' revenue dropped 9.5% year over year.
Investors waiting on the sidelines for signs that a turnaround is on the horizon might want to consider investing only once they see a couple of quarters of year-over-year organic revenue growth that's generated without sacrificing margins.