No two ways about it: The month of March has been miserable for investors in three-dimensional printer-maker 3D Systems (DDD 3.01%), who have watched their investments plummet in price from a February 20 high of $12.41 a share to Thursday's closing price of $6.64 -- a 46% drop in under a month's time.
On the other hand, though ... 3D Systems is now 46% cheaper than it was just one month ago. Does this make 3D Systems stock a buy?
We're building a movement ... down
Part of the reason 3D Systems stock is down so much, clearly, is the novel coronavirus and the havoc it has wreaked upon world stock markets. While not quite as steep as 3D's fall, the S&P 500 index as a whole is down 29% since February 20, and it's taken a lot of stocks down with it.
Of course, it didn't help matters that in the midst of this broad-market downturn, 3D Systems reported its own Q4 earnings -- earnings that weren't all that great.
What the earnings said
My fellow Fool Beth McKenna ran down the numbers for us last month. For fiscal Q4, 3D reported:
- A 9% drop in revenue,
- A 2.1 percentage point drop in gross profits on that revenue,
- Negative GAAP earnings of $0.04 per share, and
- A 50% decline in adjusted earnings.
Weak earnings in the midst of a stock market downturn? "That's a paddlin'." Already on the decline before earnings came out, 3D's stock shed 5% of its value the day the news was made public -- and has continued falling along with the rest of the market ever since.
And it may not be done falling yet.
As Beth later pointed out, 3D printer makers like 3D struggled to overcome a "weak macroeconomic environment" in Q4, but instead of improving this year, the economy is "poised to get much weaker due to the COVID-19 pandemic." And 3D isn't entering this weakened economy in the best competitive position, either.
With only $134 million of cash in the bank, it's got less than half the cash available to sustain it, as has its biggest publicly traded competitor, Stratasys (SSYS 1.82%), a company with similar revenue size and a stronger market capitalization. With more cash to work with, Stratasys is better positioned to capitalize on a market full of even weaker competitors -- it can cut prices to win market share and roll up competition to emerge from the crisis stronger than before. And it's got more money to spend on research and development to make its products better.
And Stratasys is in fact spending that R&D cash -- 40% more than 3D is spending.
The upshot for investors
Now, admittedly the news isn't all bad for 3D Systems. For one thing, while Stratasys has more money now, it's not currently generating any new cash in the form of positive free cash flow. 3D is -- even if only a little ($7.6 million in FCF generated last year).
3D's ability to self-fund its operations means that even if it has less cash to work with currently, it's unlikely to run out of cash, or go out of business, unless its business gets significantly worse in the year to come. (Although it's worth noting that if we fall into a recession, that could very well happen.)
Also worth noting is that, historically, Stratasys has been the better cash generator, throwing off roughly $40 million in positive free cash flow in each of 2017 and 2018, for example, versus negative free cash flow at 3D Systems. This is one of the reasons Stratasys has so much more cash in the bank today than 3D. And if things "revert to the norm," it's why investors might expect Stratasys to outperform 3D going forward as well.
Long story short, 3D Systems stock has been pretty beat up by the market downturn these past three weeks. It's a lot cheaper than it once was -- but that still doesn't make it a "buy."