For the third day in a row, 3D printing stocks are rocketing higher today -- and in unison -- with Desktop Metal (DM 0.98%) shares up 10.4%, Stratasys (SSYS -1.39%) climbing 10.6%, and the industry's eponymous name, 3D Systems (DDD -1.44%) leading the pack higher with a 10.9% gain.
You can probably thank J.P. Morgan for at least some of these gains.
Investment bank J.P. Morgan removed its sell rating on Stratasys stock yesterday, upgrading the shares to neutral with a $29 price target that the stock has still not yet hit. Although the analyst admits that Stratasys -- indeed, that the entire 3D printing industrial sector according to StreetInsider.com -- is still trading at "elevated multiples," the analyst simply can't resist the temptation to upgrade given the recent pullback in 3D stocks of all stripes.
"Risk reward is more balanced" now, says J.P. Morgan, and Stratasys stock "is trading closer to fair value" today than it has in the past. If nothing else, the analyst now expects the stock "to perform in line with the mean of our coverage over the next 6-12 months."
And that seems to be good enough for investors in Stratasys shares today, and in 3D and Desktop Metals as well. And can you blame them?
Top to bottom, shares of Stratasys crashed 60% over the past month. 3D fell 59%, and even Desktop Metals, a relatively recent IPO, declined 54%. Suffice it to say that it can be hard for any investor -- even a veteran such as J.P. Morgan -- to resist a half-off sale.
And yet, that's exactly what I'm going to urge you to do today. Yes, all three of these stocks may be significantly cheaper today than they were a month ago, but none of these companies is profitable yet. 3D and Desktop Metals are even burning cash and are reporting negative numbers according to generally accepted accounting principles (GAAP).
If you absolutely cannot resist attraction of bottom-fishing, I do agree with J.P. Morgan that Stratasys is probably the best of the bunch, now that its free cash flow has turned positive again. Still, with less than $1 million in positive cash profits generated over the past year, and earnings still profoundly negative, it remains a risky bet. If you must buy it, I'd suggest buying small for now and waiting for proof that the company has definitively turned the corner before going all in on Stratasys.