3D Systems Corporation (DDD) Stock Surges, Concerns Remain

3D Systems Corporation (DDD) Stock Surges, Concerns Remain

3D Systems Corporation (NYSE:DDD) earnings are out, and the Street rewarded the firm for hitting its estimates with a nearly 2.5% rise in value after climbing above $79 per share in early trading.

3D Systems Corporation (NYSE:DDD) delivered $154.8 million in revenue in the fourth quarter, up 52% year over year.  Net income was $11.2 million, highlighting the significant costs the firm is facing.  GAAP earnings per share were 11 cents, non-GAAP earnings (excluding options expenses) were 19 cents, close to Wall Street analysts’ consensus estimate. For the full year, revenue increased 45% to $513.4 million. Net income was $4.1 million, GAAP earnings per share were 45 cents and non-GAAP was 85 cents per share.

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Price earnings ratio above 100

The firm, with a price earnings ratio exceeding 100, more than doubled its research and development spending, a key source of irritation for hedge fund short sellers to $16.6 million in the fourth quarter 2013. “Maintaining our historical performance doesn’t require this level of increased expenditures, but planning to double our revenue over the next couple of years does,” said CEO Avi Reichental in a report.  “Although, in October, we guided for reduced earnings to reflect these actions, our late-quarter expenditures ramp surpassed our expectations.”

Spending supports concerns of bears

Today’s earnings news actually plays into the hands of bears, who claim the industry has yet to produce reasonably priced product to support the stock price.  Dialectic Capital, one of the leading hedge fund short sellers in the stock, noted in a recent investor letter that despite all the hype, the high production cost of 3-D printing has failed to develop realistic solutions in actual manufacturing.  “It can produce a plastic toy for $1,000 but I have yet to see anything (mass marketed) cost efficiently produced through 3-D printing.”  Dialectic isn’t the only fund shorting the “over-hyped” 3-D printing market.  As reported in ValueWalk, Witney Tilson also appears skeptical on  3D Systems Corporation (NYSE:DDD).

Looking forward, 3D Systems Corporation (NYSE:DDD) sees 2014 revenue to fall between $680 million and $720 million with continued spending on research and development. GAAP earnings are estimated between $0.44 and $0.56 per share with non-GAAP earnings between $0.73 and $0.85. “We believe that 3D Printing is at the cusp of accelerated growth and that the ultimate measure of our success will be the sustainable value we create from our share and scale gains over time,” Reichental was quoted as saying, sounding a familiar tone hedge fund managers have grown impatient hearing.

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Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com

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