Regret for the things we have done can be tempered by time; it is the regret of the things we have not done that is inconsolable. ―Sydney J. Harris
Today we revisit 3D Systems Corporation (NYSE:DDD) for the first time since February. We concluded our first article on the following recommendation around the stock:
Stealth is the best part of the value around this name at the moment and I don’t have any investment recommendations around the stock at this time. The company seems to have potential and its balance sheet looks solid. Fourth quarter results are expected to be released shortly, providing investors with another set of updated data points to consider..
This conclusion seems prescient in hindsight, as the stock has more than halved since the last time we looked at it. Since then, a few new quarterly reports have come out and the stock is obviously much cheaper than it was when we first published our research on it. Therefore, now is a good time to revisit 3D Systems to see if the stock has fallen enough to be in buy territory. An updated analysis follows below.
3D Systems Corporation is a South Carolina-based provider of 3D printing and digital manufacturing solutions, as well as regenerative medicine, 3D software, bioprinting and industrial solutions. The stock currently trades around eight dollars per share and sports an approximate market capitalization of $1.1 billion.
The company continues to make small acquisitions to expand its product offerings and capabilities. Shortly after our last 3D Systems article, it announced that it was buying Kumovis, a German provider of additive manufacturing solutions for custom healthcare applications. It made another small acquisition of a Germany-based additive company, dp polar, in early August. Recently, the company revealed that it is providing $15 million in seed capital to a new, wholly-owned biotech company called Systemic Bio, which will use advanced bioprinting technologies in drug discovery and development. In total, the company made investments and purchases of nearly $85 million in the first half of 2022.
Second quarter results:
On August 8, the company released second quarter numbers. The company recorded a non-GAAP loss of seven cents per share. The consensus expected 3D Systems to break even on a non-GAAP basis during the quarter. Revenue fell nearly 14% year-over-year to $140 million, or more than $5 million based on expectations.
Importantly, taking into account the divestments noted in our last article and in constant currency, revenue grew just over 10% in the first half of 2022 (up 7.8% in the second quarter) compared to the same period a year ago.
Management also lowered its full-year sales guidance to a range of $530-570 million from its previous range of $580-625 million. It should be noted that this is the second consecutive quarter where the company has failed to meet expectations and has lowered its forecast. Leaders cited numerous factors to justify lowering the forecast, including the strength of the dollar, geopolitical tensions and macroeconomic factors such as a slowing global economy.
Margins were also impacted during the quarter by continued challenges within the global supply chain as well as rising input costs. Something that has become a theme in 2022 in so many sectors of the economy.
Analysts’ comments and review:
Since the second quarter earnings release, JP Morgan has reissued an underweight rating and $9 price target for the stock. Credit Suisse launched the stock as a Hold with a price target of $8. Needham maintained its own Hold rating on the stock.
Approximately nine percent of the shares’ outstanding float are currently held short. Since our last article on 3D Systems, insiders have sold about $2 million worth of shares in total. Two insiders, including the CEO, bought just over $105,000 worth of stock each in May. The company ended the second quarter with nearly $640 million in cash and marketable securities on the balance sheet versus just under $450 million in long-term debt.
The current analyst firm consensus is that 3D Systems will lose a quarter of share in fiscal 2022, with revenue declining nearly 10% to $555 million. In fiscal 2023, losses are expected to narrow to around a nickel per share as revenue growth rebounds to an 8% rise to around $600 million.
Clearly, DDD is a much cheaper stock based on sales price than it was in February, as the stock has fallen over 50% since then. 3D Systems also has the track record to navigate the transition the company is currently going through. That said, the company has missed expectations and lowered its guidance over the past two quarters and the global economy appears to be heading into a recession.
I’d also like to see a bit more traction from recent acquisitions before I hit the buy on DDD button. At some point on the horizon, this name gives the impression that it will be worth investing in. However, I don’t think we’re there yet.
You can’t regret the life you didn’t lead. -Junot Diaz