- 3D Systems is in a disruptive industry, the high P/S and EV/R ratios are normal.
- DDD is susceptible to propaganda.
- 3D Systems’ numerous printing technologies make it very versatile like Phil Ivey. It can play and win in several avenues of additive manufacturing.
- A good way to profit from DDD is to ride both the bulls and bears via options trading.
I confess that my paper loss over 3D Systems (NYSE:DDD) is nearly half of my monetized gains from Facebook (NASDAQ:FB). However, whining and quitting while down are not my style. I'm only more challenged to stick it out with DDD in spite of the recent setbacks. I'm a poker grinder and I squeezed out In The Money wins by being patient and focused on long-term gains.
Many times, like DDD is right now, I got dealt with bad beats and saw my stack go to 1/10 of the big stack. I never lose my enthusiasm and just played the game. Most often, patience (not luck) to wait for strong cards helped me finish In The Money. Going full tilt just because bad press caused DDD to lose 40% of its share will not help me recover those paper losses.
The important thing is to ignore the trash talking, false tells, intimidation, and bad beats that goes with poker tournaments. The same principles apply to stock investing, it's just another gambling tournament. However, I was wrong to previously expect that stock markets follow the rule of logic. Fundamentals do not dictate how companies perform in the stock market.
Pot odds, implied odds, stack management, all important poker rules, are mathematical rules that the stock market often disregards. I lost a bundle (paper losses) on my wrong calls on Apple (NASDAQ:AAPL), BlackBerry (NASDAQ:BBRY), Nokia (NYSE:NOK), and Intel (NASDAQ:INTC). Thankfully, my poker-training helped me minimize or even win back those losses. Last month's DDD movement helped me recoup losses via judicious swing trades.
Trash Talking Dictates DDD
Spoiler alert: if you do not tolerate conspiracy theories, better stop reading this article now and go watch funny cats at YouTube.
This is also for new SA readers. Most SA veterans already know that DDD lost 40% of its price most likely because the devious people who hyped it up and brought the stock to its January highs, are the same forces that are again shorting the stock. Trash talking about DDD on the news was an easy method to make many gullible investors quickly dump their DDD like it was a dog with rabies.
Smart small investors already accept that propaganda, or psy-war tactic, is very effective in driving down or driving up any company's ticker. Big investors can either start a big rally or an avalanche of shorting if enough half-truths get into the rumor pipeline. The sheep always go where the big dogs bark out the directions.
The 3D printing industry was 2013's top disruptive topic and since DDD was the clear leader in the said sector, it received the pump and dump treatment. The heavy hitters decided the DDD's pyramid run has reached its peak last January, so they decided it was time to short and make money again on DDD's decline.
If we look back to 2013, DDD's movement was largely influenced by news releases. I can't put all the links in here, Google them yourselves and compare those good/bad news clips to the chart below. Hewlett-Packard's (NYSE:HPQ) recent 3D printing rumor last week is just one example of this market-influencing fear mongering against DDD and other additive manufacturing players.
I wish I was as smart as Phil Ivey. I am not smart enough to realize that options trading would have helped me profit from the psy-war experts' play with DDD. I am not as versatile as Ivey, I only grind Pot Limit Omaha and No Limit Hold'em tables. Ivey can play and win on all variants of poker.
Versatility Is Good for DDD's Future
Luckily for 3D Systems, its judicious acquisitions make it the Ivey of additive manufacturing. It has seven different 3D printing methods - which to me is better for the long term because multi-tabling poker games or product-selling has better variance of winning. I do 4-tables poker gambling regularly to stay ahead of the unrealistic probabilities that online poker often delivers.
Bears often cry that 3D Systems is worse than Stratasys (NASDAQ:SSYS) because DDD will have a hard time integrating seven different printing products. Only the dumb will accept this kind of faulty logic. Ask any professional poker players, they win more money because they can play at several variants of poker. More poker skills mean more tournaments to sign up for - more chances to finish In The Money.
The company's patent on laser sintering expired last month and bears again drummed up that DDD will die from this because 3D Systems cannot compete with cheap 3D printers from China. Patent expiration issues did not deter SSYS. Stratasys still bought MakerBot despite the fact that FDM patents expired years ago. Stratasys flourished despite the presence of cheaper FDM printers made possible by expired patents.
$26 Is Not DDD's Fair Value
A fellow Seeking Alpha contributor gave 3D Systems a $26 price target. Based on the comments and his replies to queries about his valuation, there's no way to justify accurately what price DDD should have. 3D Systems is in a disruptive industry that even the most brilliant mathematicians or Phil Ivey cannot put a future value on.
We only have to rely on guesstimates. The one with the loudest mouths on Wall Street, will be heard by the greatest number of listeners.
I do not have the biggest mouth but I'd like to shout that $26 is not DDD's fair value. There are so many metrics that we can use and still not come up with a near-accurate value for 3D Systems. P/S, EV/R, P/E, P/B, PEG, these are just ratios that we concocted that are not set in stone.
Beauty is in the eye of the beholder. Just look at what my darling Facebook did recently with its purchase of WhatsApp. That startup isn't worth $19 billion if we apply all the theories of good investing. A 400 million user base is not worth $19 billion. We quantify investments based on guesstimates of future returns.
Zuckerberg is smarter than me, he is gambling that the FUTURE might give him more than double the price tag of WhatsApp. WhatsApp's 2013 estimated gross revenue was only $400 million. If we use Price/Sales, Facebook valued the startup with a P/S of 47. Who are we to question the genius that is Zuckerberg. Phil Ivey will go all in with just connected connectors if he is in position. Suited connectors have good odds to produce a flush, which can beat a pair or trio of aces.
The $26 bears are not smarter than us, they are just going with the flow, dancing to the music that big market players decide for DDD.
3D Systems is being shorted because the deep stack big boys of the market decided that DDD is now a bubble stock with its high P/S ratio of more than 10. The said high valuation, which the manipulators themselves created on the expense of susceptible investors, is being used to orchestrate a bear run over 3D Systems.
Based on Facebook's latest acquisition, 3D Systems can also be worth 40x P/S to somebody out there. But of course, I'm just a conservative dumb dog from the Philippines. My 1-year PT for DDD is still 10 P/S of the projected next FY's sales of $812 million or $81.2.
My PT guesstimate is also influenced by the intangible asset that is Chuck Hull, the man largely responsible for 3D printing. Hull's old brain can still come up with an equalizer to Hewlett-Packard's threat to put 3D Systems' future in jeopardy. I hope he calls HPQ's bluff and raises Whitman's bet by threefold. A merger with SSYS is just the perfect tag team to knock out HPQ.
Since propaganda is such a big factor on how the market treats tickers, I'll be using options to ride how the big deep stack bullies treat DDD this year. Buy-and-forget is good for long-term DDD gambits but swing trading is also great.
I will do what HPQ is doing. I know how to be a bully too. I'm going to log in my max level 99 Rohan Online Templar tonight so I can terrorize low level players out of their leveling spots.
Disclosure: I am long DDD. 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.