In this segment of the MarketFoolery podcast, host Chris Hill and Motley Fool Asset Management's Bill Barker discuss the rise and fall -- and fall and fall -- of 3D printer company 3D Systems (NYSE:DDD). Though it had issued a quarterly guidance for a tidy profit, it instead delivered an even larger loss.
This company may realize it needs a new strategy, but it doesn't actually have one yet. Beyond that, it has important patents that are soon to expire. Is there any investment thesis for it at this point?
A full transcript follows the video.
This video was recorded on Nov. 1, 2017.
Chris Hill: Shares of 3D Systems are down 22%. They're hitting a six-year low. And that's because 3D Systems was expected in the third quarter to deliver actual profits, and instead it was a sizable loss. So, they're either really bad at in-quarter guidance, or things took a terrible turn in Q3. But, either way, this is a stock going straight down this morning.
Bill Barker: Yeah, this is a stock, if you look at the long-term chart for the stock, it goes straight up in 2012-2013, and then straight down ever since. Referred to, sometimes, at least by Bill Mann, as the middle finger chart, which it seems to be showing investors again, today, as it visits new multi-year lows. This used to be a $90 stock. Now it's $9. The thing is, 3D printers, it's hard to differentiate your product from the competition. There's not really enough branding power or anything to that. 3D Systems has been more in the consumer side. I don't know what consumers buy a 3D printer to make. Nothing truly useful so far. And it's not been sufficiently exposed to the business side of 3D printing.
Hill: That was going to be my question. Who are they selling to? Who are they trying to sell to? It does seem like there is a market for 3D printing, but it is, at the moment, smaller than presumably it will be at some point in the future. But I would think, any company in this line of work would be doing everything they can to, I don't want to say ignore consumers, but steer their business toward other businesses. This seems like a B2B play, and if it's not, they really need to rethink their strategy.
Barker: They got on the wrong side of that strategy a while ago, and they have been rethinking it, and they have a relatively new CEO. He is talking about new strategic directions for the company, and those have not yet come to fruition. So, some of the guidance was about, we're continuing to pursue, and we have some new exciting products are going to be coming out in the near future. But I think the market is getting tired of waiting for the company to produce some real earnings. I can't say that I blame them, because there isn't anything that exciting about any one of these companies. They have patents that are expiring, the early round patents, and that's going to inspire new entrants to show up and compete and underprice them.
Hill: So, for anyone who may have been looking at 3D Systems or any of these stocks and thinking, one potential reason to buy a stock like this is, some conglomerate, whether it be 3M or GE or some large industrial could swoop in at the last minute and buy them on the cheap, and at least it could be a cigar butt kind of stock. It sounds like, based on what you said, that's not even the case, because if the patents are expiring -- we saw, in the last five years, a bunch of tech companies getting bought up simply for their patents. If these patents are expiring, I'm not sure why any large business would want to come in and buy a 3D Systems and bring them in house.
Barker: Yeah, I think that's one of the problems. There are lots of different patents, and I wouldn't be able to tell you which of the ones that they have that are expiring when, or are important going forward. But, they've had the chance to do some things without competition for a while. That period is ending. They have grown sales, basically tripled sales in the last five or six years. So, that sounds like it's pretty good. But they also haven't really to generate and profits by doing so. So, how much do you care about rapidly growing sales if they don't translate -- in fact, they were more profitable in 2009-2010 when they were only doing $150 million a year in sales. They're up to $600 million now, but they're losing money. That's competition.
Bill Barker has no position in any of the stocks mentioned. Chris Hill has no position in any of the stocks mentioned. The Motley Fool recommends 3D Systems and 3M. The Motley Fool has a disclosure policy.