Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Stratasys (NASDAQ:SSYS) closed down 6% today after fellow 3D printing industry leader 3D Systems (NYSE:DDD) announced preliminary first-quarter 2015 earnings that came in well below analysts' expectations.
So what: It's important to understand the magnitude of 3D Systems' earnings shock: For the quarter, the company announced that it expects revenue in the range of $158 million to $160 million, falling considerably short of the analysts' consensus estimate of $182.8 million. Likewise, its expectation of non-generally accepted accounting principles earnings between $0.02 and $0.04 per share is also a big miss from the $0.17 analysts' forecast. The company anticipates a GAAP earnings loss in the range of $0.13 to $0.15.
With such an earnings shock, it's not surprising that Stratasys' stock price was also pulled down, though to a lesser degree than 3D Systems stock's nearly 10% plunge. It's a common occurrence for one company's poor earnings to take down the share prices of other companies in its industry because the market is naturally concerned that industrywide factors are at play, rather than just company-specific ones.
In this case, it seems that both industrywide factors and company-specific ones are involved. According to its press release, 3D Systems attributed part of its subpar results to economic weakness brought on by "the decline in the Euro and Yen relative to the U.S. Dollar and the aftershock of lower oil prices..." The company noted that this "caused the majority of its aerospace, automotive and health care customers to curb new printer purchases during the quarter and curtail their materials and service purchases."
While it's reasonable to believe that this same overall economic climate could also negatively affect Stratasys' results, it's also important to remember that Stratasys has generally been executing much better than 3D Systems. Additionally, 3D Systems also attributed its revenue and earnings shortfalls to "certain metal and nylon applications and performance issues delay[ing] the company's ability to sell additional printers during the quarter." This is a company-specific issue, so it has nothing to do with Stratasys.
Now what: Granted, the economic climate, particularly the foreign currency exchange rates, could negatively affect Stratasys' first-quarter earnings to some degree as well. However, the market's punishment of Stratasys' stock appears overdone, in my view. The company has generally been executing better than its large 3D printing counterpart, so investors can probably expect it to continue to better handle more challenging economic factors.