D Systems Corp. is a leading provider of 3-D Modeling, Rapid Prototyping and Manufacturing solutions. Its systems and materials reduce the time and cost of designing products and facilitate direct and indirect manufacturing by creating actual parts directly from digital input. These solutions are used for design communication and prototyping well as for production of functional end-use parts: Transform your products.
On November 4, the company reported a loss of four cents when the Zacks Consensus Estimate was calling for a gain of a penny. The five cent miss translates to a – 500% negative earnings surprise. Revenue of $152M was also below expectations and as a result the stock fell 9% in the session following the release.
DDD has an extreme valuation, with a forward PE of 360x compared to a 12x industry average. The company is trading at a 1.0x book multiple whereas the industry trades at 3.3x. The price to sales multiple of 1.9x is right in line with the industry average.
Zacks has developed a chart that helps investors see how earnings estimates have impacted the price of the stock over the last several years. We call this chart the price and consensus chart, and each color coded lines represent analyst estimates over a designated year. As estimates increase, the stock tends to follow. The Zacks Rank is impacted by earnings estimate increases, beats and incorporates the idea of analyst agreement and magnitude. As a Zacks Rank #5 (Strong Sell) we see that estimates are moving lower.
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Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Stocks Under $10, an investor service , where he recommends the stocks in the portfolio.
Brian also runs the brand new Zacks Game Changers where he looks for stocks that are disrupting their industries and reaping big gains.
I get a kick out of it when people think that they’ve discovered “the next best thing” and honestly believe they are the first person who thought of it. That’s not to make fun of the dreamers, schemers and Kosmo Kramer’s of the world. It’s just that the reality of the situation often is that you’re catching onto a trend that none of your friends are talking about, but that doesn’t make it an unknown trend. Sitting in the American Legion after taking Aunt Patty to Bingo last night I had somebody walk up to me and ask, “Hey, what do you think about 3D Printing stocks? I think it’s going to be the next big deal.”
The first time someone asked me about them, about four years ago, I thought it was a novel idea. But here we sit in 2015 these stocks are about to headline my Bear of the Day. I mean, I get it. I understand the enthusiasm. The thought of being able to download a file and instantly manufacture something on the spot is an exciting idea. I think that the first several generations of this technology are going to build on each other exponentially. Eventually these companies could do very well.
But right now, things aren’t looking so great for Zacks Rank #5 (Strong Sell) 3D Systems (DDD – Analyst Report). In addition to the Zacks Rank, it’s also carrying a Value Style score of F and Momentum Style F. That’s an easy way to look at this stock and realize that it’s not making any money today and the stock price is falling. What is the catalyst for all this?
Take a quick look at the recent earnings estimates revisions over the last thirty days. Two analysts have dropped their estimates for the current quarter and next quarter, and four analysts have dropped their numbers for the current year. This bearish attitude has crushed the Zacks Consensus Estimates for these periods. Current year consensus has seen a drop from 89 cents all the way down to 73 cents. That drop is part of the reason for the sell-off in the stock.
Since the start of the year there has been an overall downward trend for the stock. After starting the year trading in the low $30s, choppy trading brought the stock down into the $27s at the beginning of February. A rally off that bottom to test the top end of the range failed miserably in mid-February and the stock has been gasping for air ever since.
Coincidentally, the spike up in mid-February was the last time the stock’s Commodity Channel Index was in overbought territory. Fading that spike, the shorts have made plenty of money on the downturn. Currently the stock is sitting below its 21 day moving average, which is negatively sloped. The CCI is bearish at -63 but has yet to reach oversold levels, implying there could be more downside to come.
Investors looking for an alternative stock in this space should look beyond the 3D printing industry. DDDs competitors are struggling to make money in this area as well. Even Hewlett Packard (HPQ – Analyst Report), the tech giant that’s recently entered this market are a Zacks Rank #4 (Sell).