Stratasys, Ltd. Earnings: Will Growth Lift the Struggling Stock?

On Friday, Stratasys (SSYS -0.20%) will release its quarterly report, and the 3-D printing space has seen huge pressure as investors flee from high-flying growth stocks in favor of more defensive names. Yet, even as Stratasys falls in concert with 3D Systems (DDD -0.86%), ExOne (XONE), and other big-name 3-D printing players, investors hope that Stratasys will distinguish itself with its combination of consumer-facing and high-value industrial printers to cater to both potential sources of new business.

It's always hard to evaluate investment opportunities in an up-and-coming industry, and 3-D printing has both huge potential and huge risk. Between 3D Systems, ExOne, and other competitors, Stratasys faces huge challenges that it will have to overcome to end up as a big winner in the 3-D printing space. Yet, so far, Stratasys has seen few signs of an imminent major slowdown in its sales growth rate, boosting optimism about the stock. Let's take an early look at what's been happening with Stratasys during the past quarter, and what we're likely to see in its report.

Source: Stratasys.

Stats on Stratasys

Source: Yahoo! Finance.

Can Stratasys earnings top investors' expectations again?
Analysts have gotten less upbeat about Stratasys earnings in recent months, cutting their first-quarter estimates by $0.07 per share, and making similar reductions to their full-year 2015 projections. The stock has plunged, falling 22% since the end of January.

The fourth-quarter report for Stratasys showed just how anxious investors are that the 3-D printing company produce exceptional growth in order to justify its current share price. Adjusted net income rose 25% for Stratasys during the quarter, sending total revenue up 62% on organic revenue growth of 36%. Yet, even as the company consolidated after its merger with Objet, and got good performance from its MakerBot line of printers, investors sent shares downward after the company gave guidance for 35% to 40% revenue growth for full-year 2014, as they apparently found that growth rate insufficient.

One concern that many investors in 3-D printing stocks have is that valuations are high. In general, Stratasys has carried a lower price-to-sales ratio than 3D Systems, ExOne, and other 3-D printing companies. But operating margins and net profit margins have lagged 3D Systems badly, and that explains some of why investors aren't as willing to pay up for Stratasys shares compared to its archrival.

Source: Stratasys.

Stratasys is still trying to grow, though, and despite its success in boosting organic revenue, Stratasys hasn't been shy about making acquisitions. Early last month, Stratasys said it would buy additive manufacturing service bureau Solid Concepts for as much as $295 million, as well as advanced production-parts maker Harvest Technologies. One big benefit to the acquisitions is that it will help Stratasys get a foothold in the metals-printing niche, where 3D Systems and ExOne already have a presence. At the same time, by avoiding a big commitment to metals, Stratasys could end up dodging a bullet if it turns out that applications for metal-printed parts are more limited than for plastic and other materials.

The big question is whether the next revolution in 3-D printing will come from consumer or industrial applications. On one hand, consumer 3-D printers are getting a lot of attention, and Stratasys has emphasized the capabilities of its consumer printers compared to the ease-of-use focus that 3D Systems has taken. Yet, consumer printers will likely have lower margins than industrial printers, especially as pricing pressure from competition forces Stratasys and other players to reduce their prices.

In the Stratasys earnings report, watch to see whether the company can grow at the rate investors want to see, while still keeping plenty of upside potential for the future. With so much at stake in this critical time against 3D Systems, ExOne, and other rival companies, Stratasys needs to demonstrate its prowess in taking advantage of all the opportunities it has.

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