3D Systems Corporation (DDD): Why Are Investors Losing Hope


Earlier this month, 3D Systems got punished after the company lowered its previous guidance on full-year 2017 revenue and EPS. The shares lost 20% of their value.

3D Systems Corporation (NYSE:DDD) revenue has declined over the last three consecutive years. The company hasn’t posted a positive net income since 2014. Analysts expect the company’s net income to stay in the negative territory till 2018 or 2019. In 2016, 3D System had a positive operating cash flow of $56.9 million, while free cash flow came in at $40.3 million. Revenue from 3D printers dropped 14% in the second quarter. Several reports also suggest that many of the company’s distributors have stopped using DDD SLS printers and shifted to HP’s SLS printers. 3D Systems revenue is going nowhere. And there are no visible catalysts for significant revenue growth in the near future. For the full year 2017, 3D Systems Corporation (NYSE:DDD) expects its revenue to grow by just 2% to 6%. GAAP earnings per share loss is expected to come in at $0.14.

In 2016, the South Carolina-based company got a new CEO and CFO who have worked at top positions in HP. But the new management could not rid the company of its perennial problem of huge SG&A expenses. 3D Systems Corporation (NYSE:DDD) has a strong balance sheet but its income statement isn’t strong enough to support the company’s performance and growth. 3D Systems is making huge investments in R&D and shifting towards additive manufacturing processes from prototyping, but these steps will take a lot of time to bear fruit. Therefore, to invest in the company based on the shift towards the lucrative additive manufacturing, investors should be ready to wait and be patient.

3D Systems Corporation (NYSE:DDD) shares are down over 5% since the start of 2017. The company does not have a positive PE ratio, but its Price/Sales ratio is an impressive 2.2x compared to the industry average of 3.3x. 3D Systems gross profit margin of 49% also beats the industry average of 37.7%. But 3D Systems’ operating margin is falling rapidly. It currently stands at -5.3% margin compared to an industry average of 24.2%. The basic reason of these massive declines in operating margins is investments in R&D and burgeoning expenses.

Some of the major growth drivers of 3D systems include Materials innovations, innovative healthcare devices and additive manufacturing processes. Apart from selling 3D printers, the company provides software, materials and services, which ensure its revenue diversification and safety.

On August 4, JPMorgan said in a report that 3D Systems Corporation (NYSE:DDD) will keep losing market share to the new entrants. However, the investment firm upgraded the stock and gave a price target of $13 on the back of good valuation.