Stratasys (NASDAQ:SSYS), a maker of rapid-prototyping and 3D-printing systems, may have enjoyed soaring sales of the next hot-ticket technologies. But the latest hit to its stock provides further evidence of the risks of investing in a richly valued company. A premium valuation offers little room for error, and this latest price drop suggests one may have surfaced.
Stratasys reported its second-quarter results yesterday, and shareholders awoke to find the stock walloped down 8%. What had investors running faster than George Costanza at a fire alarm? Two factors set the sprinklers off:
The company experienced sales weakness from both its high-end systems and its paid-parts business. However, it did see strength in Dimension 3D printing sales and consumables revenues. Overall, sales grew by 20%, to $20.8 million for the period.
Investors paid particular attention to soft high-end unit sales, because these units have healthier profit margins. Even the highly profitable consumables couldn't absorb the strain from this shortfall, resulting in a 14.5% drop to the company's operating profit margins vs. the year-ago quarter.
Despite margin pressure, Stratasys was able to earn $2.9 million, or $0.27 per share, exceeding analyst expectations of $0.26. Additionally, the company reaffirmed its full-year earnings guidance of $1.07 to $1.12 per share, in line with consensus estimates of $1.09.
The company's valuation remains a problem. Even with the latest drop in price, its stock currently trades at roughly 28 times forward earnings. This price is fine if the company can come through the next few quarters squeaky clean, but the current sell-off shows how investors may react at the first sign of smoke.
If you're interested in this stock or a competitor such as 3-D Systems (NASDAQ:TDSC), which also has experienced some clogs recently, I recommend you exercise patience. Set a wish list price at which you'd like to buy this stock, then hold out for it. Good things supposedly come to those who wait; for Foolish investors, this has never been truer.
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Fool contributor Jeremy MacNealy does not own shares in any of the companies mentioned.
