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3D Systems (NYSE:DDD) reported a solid quarter, as it provided a guidance that exceeded expectations. Net income growth is likely to stall as 3D Systems is expected to aggressively invest into its business in order to drive organic sales growth. Acquisitions and high operating expenses seem to go hand-in-hand with high momentum names.

Based on the information provided in the earnings conference call, much of the negativity surrounding the stock isn't justified at the present moment. Besides the concerns surrounding the high earnings multiples, and the euphoric rise of the stock price, there's not a whole lot here to short.

Summarizing financial performance on a year-over-year basis

Sales grew 52.4% year-over-year, while gross profit improved by 52.6% year-over-year. The gross profit margin has remained the same at 51.7%. However, operating expenditure increased by an astounding 81% year-over-year. As a result the net income improved by 2.9% year-over-year. The low earnings growth comes as a result of aggressive spending on the part of management.

(click to enlarge)

Source: 3D Systems

Damon Gregoire, CFO and SVP of 3D Systems states:

Consistent with our prior comments, we more than doubled our fourth quarter R&D spending and continued to rapidly increase our sales, marketing and infrastructure expenditures in support of our growth initiatives and recently announced joint developments and alliances. These expenditures and investments had aggregated to $50 million of non-GAAP operating expenses for the quarter are designed to increase our leadership position and expand our market share.

In other words, 3D Systems spent more money, which will improve its positioning and generate more sales as a result. I applaud the management for taking on a more aggressive stance when it comes to sales growth. Historically, the market rewards high sales growth more than high earnings growth, because earnings can increase as a result of better cost management, whereas sales growth comes as a result of intelligent investment on the part of management.

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Source: 3D Systems

3D Systems has increased the amount spent on SG&A by 47% year-over-year and R&D by 87.4% year-over-year for the full year. The fastest-rising spending category has been R&D, as it's blatantly obvious that 3D Systems needs to aggressively invest in the development of future products in order to sustain sales growth. The CFO also mentions that SG&A was up slightly more than expected:

During our mid-quarter assessment and subsequent guidance update in late October 2013, we expanded our sales and marketing expenses. We expected our sales and marketing expenses to increase by $3 million, sequentially, but actual sales and marketing expenses increased $8.4 million due to the expanded number of new products we unveiled, the faster greater sales and channel expansion activities we undertook and the highest concentration of acquisitions in the quarter.

This isn't bad, as marketing spend should increase as a result of a higher number of product launches. It wouldn't be very intelligent to increase product offerings without increasing product awareness.

Guidance and earnings for the quarter was solid

Analysts were expecting EPS of around $0.19 per share for the quarter. DDD reported earnings of $0.19 per share. The expectations were based on Non-GAAP figures that 3D Systems reports to shareholders.

Source: 3D Systems

3D Systems expects sales to grow to a billion by 2015. This indicates that the stock is slightly undervalued as it can potentially grow into its 164 P/E multiple in a reasonable enough timeframe. While, I don't advocate the company to increase net income through cost cutting, the 51.7% gross margin indicates that the cost of revenue is low enough, so that if the business were to further scale, operating costs can be capped, thus allowing massive net income growth in future years.

The company currently trades at a 17 P/S, and assuming the company can provide guidance in 2015 that's near its historical growth rate, the stock can easily trade at a $17 billion to $30 billion valuation in the two-year time frame we're working with. Since market maturation won't happen for quite a while, the revenue growth can be sustained for quite a while longer. Therefore, 3D Systems is likely to price future growth in the future, making it a bargain in the present.

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Source: Yahoo! Finance

Analysts expect sales growth of around 36% for fiscal year 2014. However, the guidance indicates that the CAGR between 2014 and 2015 is 39.62%. This is 3.5% above consensus estimates for next year sales growth. In other words, forward guidance beat analysts' estimates; therefore, the stock is due for a massive move to the upside.

Source: FreeStockCharts

As you can tell, DDD has declined from its all-time-high at around $100 per share. I think the recent earnings results make for an excellent opportunity for investors to buy on the dip. Resistance at the 20-day and 50-day moving average are likely to be temporary, and I expect a continuation of 3D Systems' long-term up-trend.

Conclusion

As you can tell, I remain optimistic on 3D Systems and expect further stock price appreciation following the earnings announcement. The company's aggressive approach to investment and acquisitions confirms my suspicion that 3D Systems is better positioned than many of its competitors. I don't think there's a valid short thesis on the stock, and if such a thesis were to exist, it won't materialize for quite a while.

I would remain long due to sector growth, aggressive investment, and favorable guidance. I expect 3D printing technologies to continue to unlock more and more industrial applications as the technology advances. As more and more unique-use-cases emerge, demand for 3D printing services and devices will continue to trend higher. Therefore, accumulating a position over the next five years would take advantage of the upside while alleviating volatility.

Source: 3D Systems' Guidance Exceeds Estimates: Further Upside Ahead