3D Systems Could Send Short Sellers Scurrying For Cover

| About: 3D Systems (DDD)

Given the intense competition in the 3-D printing market, it can be a tricky task for investors to pick the right company. As of now, 3D Systems (NYSE:DDD) is one of the best picks among all the 3-D printing companies. There are many big name players in the 3-D printing industry that can have a considerable influence on the performance of 3D Systems in the future, specifically General Electric (NYSE:GE).

A New Customer?

Last year, when General Electric acquired an additive manufacturing company called Morris Technology, it was widely assumed that GE would move into this lucrative market to challenge the existing 3-D printing companies. However, now it seems as if GE has no such plans, which is good news for the existing 3-D printing companies as they will not have to compete against GE. In fact, GE is planning to increase the practical uses of 3-D printing. The company has estimated that this technology will account for more than 50% of its manufacturing in a time span of 20 years. As of now, 3-D printing only accounts for about 10% of General Electric's manufacturing process, but this count is expected to grow 25% in 10 years.

General Electric has been using 3-D printing for the manufacturing of fuel nozzles for the LEAP engine, which it manufactures for use in Boeing's (NYSE:BA) 737-MAX airliners. By expanding 3-D printing on an industrial scale, the company has been able to reduce time and money consumption significantly. This goes on to show that 3-D printing will evolve into the next-generation technology for wide-scale industrial production.

As of now, GE has business segments in aviation, energy technology, and home and medical appliances. Therefore, GE's increased adoption of additive manufacturing should lead to an increase in demand for 3-D printers, which ultimately should benefit the printer makers.

Short Sellers Not a Concern

However, an increasing amount of short sellers has instilled some fear in the company's investors. It won't be rational to buy a company with high short interest and blindly hope against all odds that the short sellers got it wrong. Despite the increasing number of short sellers, 3D Systems remains the pioneer of the 3-D printing industry due to its strong business structure. So, let's take a look at what the company is doing to expand its business. But first let's take a quick look at 3D Systems' short interest as compared to its peers.

Company Name

Forward P/E Ratio

Short Interest as a % of Market Capitalization

3D Systems

40.44

32.50%

Stratasys (NASDAQ:SSYS)

42.19

8.70%

ExOne (NASDAQ:XONE)

112.43

43.90%

Click to enlarge

As made evident from the table above, though the short interest in 3D Systems is lower than ExOne, it is considerably higher than its primary rival Stratasys. The primary reason behind this rising short interest is shareholders' increasing concern about 3D Systems' acquisition moves. The company has spent lavishly on the acquisition of 38 companies, the latest one being The Sugar Lab, in order to add to its product offerings. 3D Systems has been issuing debt offerings and stocks to make up for the acquisition costs, which has further added to the woes of investors. Nonetheless, 3D Systems' debt seems to be controllable, primarily because of the huge growth opportunities in the 3-D printing industry.

3D Systems is the leading player in the 3-D printing industry, which is projected to grow 200% by 2018. The company's earnings are estimated to attain growth rates well above the industry average. To capitalize on this growing industry, 3D Systems is working on product innovations. So far, in 2013, 3D Systems has launched four new printer products and nine new ProJet printers. To expand its presence in the consumer market, the company also launched Cube and CubeX. To guarantee the sale of these products, the company has been bolstering its worldwide reseller network. Over the last six months, the company has added Seiko-I Infotech and Synnex Corporation as global sellers and this is expected to boost its sales in the future.

Conclusion

3-D printing technology is still in an early stage of deployment, but the opportunities in this industry are massive. 3D Systems has been making the right moves to perform better than its peers. Therefore, I believe that the high short interest in the stock is unfair and the large proportion of the company's stock being sold short exposes to a short squeeze. But if 3D Systems is able to sustain the expansion of its international reseller network along with innovating new products, the short sellers will be forced to buy back the shares.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.