The 3D printing sector has been slaughtered in 2015. The sector is almost as bad and as hated as gold miners. That said, a contrarian thought could be that it is time to bottom fish. While that will be true at a certain point, the question is whether that time is NOW? Let’s try to answer that question in this article.
The bellwether stock in the 3D printing is 3D Systems (DDD). The first chart below shows two trends since this summer. First, a falling trend, followed by a breakdown in November. Since then, however, there was a pattern of higher lows … until the breakdown point was reached (around $11). The really bad news, however, is that DDD sold off in a matter of days, and, today, it broke down below its rising trendline. That’s certainly not a healthy signal. We believe the bottom is not in yet.
Similarly, Stratsys (SSYS), with a $1.2B market cap (slightly bigger than DDD), has a similar chart pattern. It’s just that SSYS did not broke down yet, so it gets the benefit of the doubt. The fact that trading volume is not picking up (certainly since November’s uptrend) suggests that the market is anticipating more selling.
From a fundamental perspective, the sector is going through a thorough change. The 3D printing market is growing slower than everyone expected which implies there is an overcapacity. Eliminating overcapacity and reorganizing the companies in this sector will take time. Our estimate is that it will take at least one year until good progress has been made.
3D Systems, for instance, has been reorganizing their senior management team, and they invoked an ‘Executive Management Committee’ to promote leadership and strategic initiatives.
In terms of financial results, DDD saw a decrease in its revenue to $151M in Q3 of this year, compared to $170M the quarter before and $166M q-o-q. The loss per share was $0.29, much worse than $0.12 the quarter before and $0.03 q-o-q. The cash position of the company fell from $157M to $171M last quarter.
The market is not optimistic neither, as evidenced by the short ratios of most 3D printing stocks:
- 3D Systems: 31% short float ratio
- Stratasys: 23% short float ratio
- Exone: 25% short float ratio
- Proto Labs: 21% short float ratio
This is not the time to bottom fish. At least, not yet, maybe we will see some more positive signs in 2016.