Fresh off of a share split, 3D Systems continued to be taken lower as its fourth-quarter revenue came in slightly below analyst expectations. Looking beyond this short-term setback, the big story here is that 3D Systems' long-term investment thesis appears to remain intact. As a result, this punishing has inadvertently presented long-term investors with a great buying opportunity.
The pulse of business:
Percent Change (YoY)
Percent of Total
Source: 3D Systems quarterly earnings press release. Revenue in thousands of dollars
For the quarter, the company reported a net income of $22.6 million on record revenues of $101.6 million, which represented a 45.4% year-over-year increase. The company's gross profit margin expanded 460 basis points year over year to 51.7%, indicating that sales growth has not come at the expense of profitability. For the full year, revenue grew 53.5%, fueled by a 90% year-over-year increase in product growth. Excluding acquisitions, 3D Systems reported 22.4% organic growth for 2012. All in all, these results look great on paper.
Typical of many high-growth companies, expectations have likely gotten in the way of 3D Systems' long-term growth story. The company has projected 2013 revenues will range from $440 million to $485 million, representing a 24% to 37% increase from its 2012 results - a number far below last year's annual growth rate of 53.5%. The fact that the company trades with a P/E in the 70s, and its 2013 growth expectations are more or less in line with Wall Street expectations, justifies why we get a sell-off like today. Apparently, Wall Street would prefer if 3D Systems projected booming growth rates far beyond what the 3-D printing industry can actually support.
It comes with the territory
High-growth investors should be made aware that setbacks as a result of mismatched expectations are bound to happen from time to time. Over the long term, resetting these expectations are actually good for a company in 3D Systems' position because it increases the chances that it will be able to more easily please investors in the future. Obviously, this opportunity hinges on a company's ability to show continued signs of great progress.
Let's not forget
Investors absolutely love getting ahead of themselves when a technology as exciting as 3-D printing comes along and offers the promise of disrupting practically the entire manufacturing industry. The good news is that even though investors may become more timid on the prospects of 3-D printing, the incredible growth potential that 3-D printing offers to the world isn't going to change overnight. According to Wohlers Associates, the leader of 3-D printing related insights, it's expected that the 3-D printing industry will continue growing in the strong double digits in the coming years, and will eventually become a $6.5 billion industry in 2019. If you combine 3D Systems' 22.4% organic growth rate for 2012 with its revenue growth forecast for 2013, there's a good chance the company will grow faster than the industry average. Currently, investors do not seem to be focusing on the prospect of market share gains will be part of 3D Systems' future.
It's a marathon
High-growth investing often comes with a higher degree of volatility. Here at The Motley Fool, we believe taking a long-term view helps mitigate the short-term setbacks associated with high-growth investing. The fact of the matter is that 3D Systems increased its net income by 63.6% year over year and is now worth less than it was on Friday. Not to mention, the company is by far the most diversified 3-D printing investment around, which improves its chances of success over the long term. I've already put those valuation concerns aside, but the only thing I can say with certainty is that I won't be giving up on 3D Systems or the prospect of 3-D printing anytime soon.
3D Systems is at the leading edge of a disruptive technological revolution, with the broadest portfolio of 3-D printers in the industry. However, despite years of earnings growth, 3D Systems' share price has risen even faster, and today the company sports a dizzying valuation. To help investors decide whether the future of additive manufacturing is bright enough to justify the lofty price tag on the company's shares, The Motley Fool has compiled a premium research report on whether 3D Systems is a buy right now. In our report, we take a close look at 3D Systems' opportunities, risks, and critical factors for growth. You'll also find reasons to buy or sell, and receive a full year of analyst updates with the report. To start reading, simply click here now for instant access.
The article 3D Systems: Here Is Your Buying Opportunity originally appeared on Fool.com.
Fool contributor Steve Heller owns shares of 3D Systems. The Motley Fool recommends 3D Systems. The Motley Fool owns shares of 3D Systems and has the following options: Short Jan 2014 $55 Calls on 3D Systems and Short Jan 2014 $30 Puts on 3D Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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