What happened

Shares of 3D Systems (NYSE:DDD), a maker of 3D printers, soared 13% in early trading Monday before retracing to about a 4.2% gain as of 1:20 p.m. EST.

The reason the stock gave back most of its gains appears to be a new downgrade from analysts at German investment bank Berenberg. But the the stock was still rising today after the bank more than tripled its price target on it.  

Stock up glowing green arrow climbs on a stock screen

Image source: Getty Images.

So what

In today's downgrade, reported on StreetInsider.com, Berenberg noted that 3D shares have rocketed 500% since October 2020, more than 10 times the gains on the Russell 2000 index of small-cap companies in that same period. Now, the bank says, 3D enjoys "strong long-term growth prospects in healthcare," and it praises the company for its "transition to higher-margin end-to-end manufacturing solutions."

The company recently promised vastly better fourth-quarter sales than analysts are expecting. So, combined with those higher margins, that suggests that 3D Systems could soon resume reporting profitable quarters again. But Berenberg notes that "at current levels, we think DDD shares are mostly pricing in" all of those promising prospects, and the stock has little room left to run.

Now what

Still, 3D shares are in positive territory today because, even though Berenberg cut its rating on the stock, the bank more than tripled its price target.

In Berenberg's estimation, 3D's rapidly recovering sales and the prospect of an accelerated return to profitability make shares worth $30 today, versus the $9 the analyst previously valued them at.

This analysis probably has investors enthused about 3D. But here's the upshot: Berenberg says 3D is worth $30 a share, but it sells for nearly $36 right now. This implies something on the order of 17% downside over the course of the next year.

If 3D Systems fails to report its hoped-for profit when earnings are announced next month, the actual downside could be even worse. Today just might be an excellent time to take some profits, and wait for proof that 3D is profitable again, before buying back in.  

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.