Please ensure Javascript is enabled for purposes of website accessibility

Why 3D Systems Stock Crashed Again Today

By Rich Smith – Nov 11, 2021 at 12:32PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

3D Systems is taking on debt to raise cash -- but why?

What happened

Shares of 3D printer manufacturer 3D Systems (DDD 6.22%) had plummeted 10.2% as of 11:30 a.m. EST Thursday.

That's the bad news. The worse news is that it seems 3D Systems has only itself to blame for the drop.

White arrow declining sharply atop a stock tickertape display bathed in red.

Image source: Getty Images.

So what

Last night after close of trading, 3D Systems spooked the market by announcing it will offer $350 million worth of "convertible senior notes due 2026" (i.e., new debt), and potentially as much as $402.5 million if underwriters exercise their overallotment options on the offering.  

Management indicated it "intends to use the net proceeds from the offering for general corporate purposes, which may include potential acquisitions, investments and strategic transactions." That actually makes sense, though. 3D can't very well use the new cash for paying down debt, because the company hardly has any debt -- just $54 million worth at last report.

Now what

So what's spooking investors about this debt offering? One possibility is that, because the debt is convertible into stock, the debt offering brings the possibility of stock dilution.

Investors may also be wondering, though, why 3D sees the immediate need to raise so much cash, and right after reporting quarterly earnings that showed the company is doing such a fine job of generating free cash flow? 3D cranked out $57.8 million in positive cash profits over the past four reported quarters. But if the company doesn't need to raise cash to cancel out cash burn, why does it need cash?

The bit about using its "net proceeds" for "potential acquisitions" rings a bell. I'd bet what's really worrying investors today is that 3D is getting ready to overpay for an acquisition.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends 3D Systems. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.