DDD Percent of Float Short Chart

DDD Percent of Float Short data by YCharts.

With nearly 35% of 3D Systems' (DDD -0.86%) shares being sold short, the 3D printing maker has become one of the most shorted stocks on the market. Clearly, investors aren't feeling very optimistic about 3D Systems' future prospects -- and rightfully so. In recent years, the company has experienced a host of performance-related issues that have raised doubts that it will deliver on its promise of long-term earnings growth.

In particular, the following four factors are giving bears plenty of reasons to short 3D Systems' stock.

1. Execution
Since the start of 2014, 3D Systems has suffered a host of execution issues, including manufacturing constraints, product shipment delays, various product and material quality issues, and weak sales performance in North America. It's almost become routine that 3D Systems provides a reason behind a quarter's disappointing results.

Obviously, when companies get into the habit of underperforming based on reasons that are within its control, it erodes investor confidence. After all, who would continue to have faith in a company that can't seem to get a solid handle on its operations?

2. Unfocused management
Behind 3D Systems' poor execution lies a management team that's made operating efficiently a lower priority than integrating under one umbrella the roughly 50 acquisitions it's made in the last four years.

Management's distraction has come at the expense of 3D Systems' cash conversion cycle, which measures the number of days it takes cash to run through the sales process -- from sitting in the bank to buying inventory, to selling said inventory, to collecting payment.

As the following chart illustrates, 3D Systems' cash conversion cycle has been steadily on the rise in recent years, which happens to coincide with its acquisition spree. Consequently, 3D Systems is taking a longer time to reinvest its cash into the business, which suggests that the company isn't operating as efficiently as it could be.

DDD Cash Conversion Cycle (Quarterly) Chart

DDD Cash Conversion Cycle (Quarterly) data by YCharts.

3. Diminishing returns
Unfortunately, 3D Systems' bang for its investment bucks has been on the decline. The company's organic growth rate, which measures the amount of annual revenue growth for revenues greater than a year old, has fallen off a cliff in the last year. Measuring organic growth helps investors determine how a company's sales are trending outside of new acquisitions.

In the first quarter, 3D Systems' organic growth rate plunged to negative 7% year over year. In other words, recent acquisitions are the only reason the company reported 9% overall revenue growth for the quarter.

Source: 3D Systems.

What's more, the return that 3D Systems' free cash flow generates from its invested capital base has also been on the decline, as measured by its cash return on capital invested. To determine a company's CROCI, divide its free cash flow by its total invested capital (the sum of outstanding debt and shareholder equity). The CROCI metric measures in percent how much free cash flow a business is generating for each dollar of capital invested into the business.

Suffice it to say, investments into 3D Systems' capital base haven't exactly translated into improved free cash flow returns:

DDD Cash Return on Capital Invested (CROCI) (Annual) Chart

DDD Cash Return on Capital Invested (CROCI) (Annual) data by YCharts.

4. Questionable work environment
Companies that appear on Fortune's Best 100 Companies to Work For list tend to significantly outperform the broader stock market. This is likely because a company's work environment is crucial for it to attract and retain talent -- key ingredients for driving long-term business results.

Unfortunately, 3D Systems hasn't scored high marks with employees on Glassdoor.com, an anonymous employer review site:

Source: Glassdoor.com.

Although 78 reviews aren't indicative of 3D Systems' base of over 2,100 employees, poor employee morale could weigh on the company's long-term operating performance.

Putting it all together
As 3D Systems has demonstrated, building a highly diversified 3D printing company through a hyper-aggressive acquisition strategy isn't a walk in the park. It could lead to execution issues, a distracted management team, diminishing returns, and potentially poor employee morale.

Unless 3D Systems works to make improvements in these areas, the case for short-selling 3D Systems' stock remains strong.