For the better part of two years, the 3D printing stocks of 3D Systems (DDD), Stratasys (SSYS), and ExOne (XONE) saw unabated growth and soaring stock prices. The market wasn’t paying attention to reality or accepting any potential threats or risks. Remember that in a normal market, a stock or sector of stocks that rise significantly typically attracts competitors and larger entrants from similar sectors. To an extent, too much success can create the ultimate downfall, as competition leads to lower margins. At the same time, fast growth and substantial profits will also drive in other entrants even if somewhat based on perception more than reality.
Just this week, the sector finally got confirmation that one of the biggest threats is going to come to fruition. Printing technology leader, Hewlett Hewlett-Packard Co. (HPQ) confirmed intentions to unveil revolutionary 3D products by June. The move was long speculated as a threat to the industry, but investors pushing the sector stocks up to absurd valuation multiples mostly ignored this certain risk.
With leader 3D Systems plunging some 40% since peaking at the start of the year, investors are faced with the reality that significant competition will begin in 2014. Long-term, new entrants will grow the size of the pie for the sector, but it doesn’t mean that 3D Systems or Stratasys will see higher stock prices anytime soon. Investors need to look no further than the natural gas shale boom and Chesapeake Energy (CHK) too see what happens to the leading stock when sector growth attracts more investments.
At Bank Of America, The analysts wrote, “We are downgrading shares of 3D Systems to Underperform with a PO of $65 for the following reasons (1) Organic growth rate peaking in 2014 and incremental topline growth will come at the expense of margins, (2) We view the increased investments as a catchup in spend necessary to stay competitive rather than driving incremental growth, (3) A lot of the M&A while additive to near term growth, in our opinion, will result in diluting LT organic growth and adds integration and execution risk in the interim, (4) A lot of high profile partnerships sound exciting (Motorola Mobility, Hasbro, Hershey’s etc.) but success will be predicated on widespread adoption and margin performance driven by such ventures will likely be challenged.” William Dante, of the Association of 3D Printing feels that: “3D Printing Marketing is still an issue, and those firms who can market and sell will be the eventual winners.”
3D Systems (NYSE:DDD) opened at 80.74 on Monday. 3D Systems has a 1-year low of $27.88 and a 1-year high of $97.28. The stock’s 50-day moving average is $81.10 and its 200-day moving average is $67.56. The company has a market cap of $8.298 billion and a price-to-earnings ratio of 174.76.
Several other analysts have also recently commented on the stock. Analysts at Citigroup Inc. set a $78.00 price target on shares of 3D Systems in a research note on Wednesday, February 12th. Separately, analysts at Zacks downgraded shares of 3D Systems from a “neutral” rating to an “underperform” rating in a research note on Monday, February 10th. They now have a $64.40 price target on the stock. Finally, analysts at William Blair reiterated an “underperform” rating on shares of 3D Systems in a research note on Thursday, February 6th. Three analysts have rated the stock with a sell rating, four have given a hold rating and eleven have given a buy rating to the company. 3D Systems has an average rating of “Hold” and an average target price of $86.24.
3D Systems Corporation (NYSE:DDD) is a holding company that operates through subsidiaries in the United States, Europe and the Asia-Pacific region.
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