Seeking Alpha
Growth, momentum, small-cap, mid-cap
Profile| Send Message|
( followers)  

It took less than four months for 3D Systems (NYSE:DDD) to make new all time highs, after a vicious correction in February and March, when the stock corrected more than 40% from the late January peak. The situation in the industry has changed for the better, and all stocks in the group moved to new highs in May. The volatility is still present, and we saw 3D Systems correct more than 15% since the peak on May 14th, and the price recovered somewhat afterwards, although the stock is 10% off its all time high.

Recent developments

May has been packed with news concerning 3D Systems and the 3D printing group in general. I covered the previous developments up until May 5th in my previous article, and those included an in-line earnings announcement, the acquisition of Rapid Product Development Group and the raised full year guidance and the deal with Staples (NASDAQ:SPLS) which will be the first major retailer to sell 3D printers.

Since then, 3D Systems was added to the S&P 400 mid-cap index. The news sent the stock higher. On May 7th, the company announced a mixed shelf offering. The company sold 6.2 million shares and 1.3 million shares were sold by certain shareholders, including certain officers and directors and their affiliates. 3D Systems intends to use the net proceeds from the offering to finance future acquisitions of other entities or their assets and for working capital and general corporate purposes.

The offering is worrisome, since it is the second time in a short period of time that the insiders are cashing out. And the intention of the company to use the funds for more acquisitions can go both ways, if the acquisitions are costly and hard to integrate. We will see how it goes from here, and the company has done well to integrate all the acquired companies up until now.

3D Systems launched Geomagic Solutions and Cubify Draw in May. Geomagic Solutions is 3D Systems' integrated design-to-manufacturing software tool, which combines comprehensive reverse engineering tools with mechanical CAD. Cubify Draw is a mobile 3D printing app for iOS. Anyone with an iPhone, iPad or iPad Mini device can create printable content with their fingertips. The app is available in the App Store via free download. The company is boosting its efforts in the consumer segment, and the Cubify Draw is another example. The management said in the first quarter conference call that the consumer solutions will drive more significant revenue in the second half of the year.

Analysts mostly positive

Analysts have been mostly bullish on 3D Systems and 3D printing stocks recently. Janney Montgomery Scott initiated coverage on 3D Systems with a buy and price target of $56. Needham & Company raised the PT from $42 to $52. They also raised the EPS and revenue estimates, stating the RPDG acquisition. Canaccord Genuity reiterated the buy rating and raised the PT from $45 to $50. Canaccord believes 3D Systems can deliver upside to consensus estimates driven by strong printer and services revenue and as the company moves into the commercialization phase for Bespoke (carpal tunnel braces) in the second half of the year.

The only downgrade comes from William Blair, which downgraded both 3D Systems and Stratasys (NASDAQ:SSYS) to underperform from market perform with no price target. The firm said there is too much hype surrounding the 3D printing industry and a cloudy future.

Short interest

There were no major changes in the short interest in the latest reporting period. Short interest decreased by 0.8 million in the second half of April. It will be interesting to see the next short interest report, since the price increased 30% in the first half of May. The short interest level is still quite elevated at 30.7% of free float.

Source for data: Nasdaq.com

Group movement

Stratasys and ExOne (NASDAQ:XONE) were highly correlated with 3D Systems recently, and have moved higher and lower together. Stratasys reported earnings on May 13th, which were better than expected, and it gave a lift to the group, and all three stocks reached new all time highs the next day. The next day was at the same time a top for the time being, since ExOne released earnings after the close on May 14th. Earnings and revenue missed analyst expectations, and ExOne plunged more than 20% in just two days after the earnings announcement. ExOne's share price has recovered since then, but is still about 10% off its all time high. Stratasys and 3D Systems are far more important for group movement than ExOne, since it only has a small part of the group's revenue.

The group seems to be moving ahead of expectations, and their valuations are stretched at the moment. So, they need to keep delivering strong growth in the future in order to accommodate the high expectations. Exone's two-day plunge shows how vulnerable a stock can be if it delivers below expectations.

Price and volume action remains bullish. There is still far more accumulation in the pattern, meaning higher volume on up days, and lower volume on down days. Subdued volume on down days suggests there is not much selling pressure. The similar case is seen in Stratasys' chart, and only ExOne has two major distribution days, following its weak earnings report. It is worth mentioning that the general market has also been very strong up until recently, and if the broad market environment stays positive, it improves the chances for 3D Systems to move higher.

(click to enlarge)

(click to enlarge)

(click to enlarge)

Source: Stockcharts

Conclusion

The overall condition of 3D Systems is mixed right now. The company's growth efforts, its aggressive acquisition strategy and overall execution seem to be doing well and the price and volume action remains positive, with accumulation in the pattern. However, the insiders are cashing out recently and that raises a red flag. The valuation is stretched at the moment, and the company needs to keep delivering robust long term growth in order to justify the inflated valuation. I am still very positive on the long term prospects of 3D Systems and the 3D printing industry, and maintain my long term bullish stance, with a more careful short-term view, given the red flags sticking out.

Source: 3D Systems' Mixed Short-Term Picture