Here's Why 3D Systems Tanked... Again.


"A cathedral, a wave of storm, a dancer's leap, never turn out to be as high as we had hoped." - Marcel Proust

3D Systems reported its fourth-quarter and full-year 2012 earnings and, for the second time in three days, things got downright ugly for the additive manufacturing specialist.

Of course, just last Thursday I wrote to explain why shares of 3D Systems had fallen as much as 10% in a single session; to be sure, the culprit at the time appeared to be a combination of good old-fashioned volatility and wider industry valuation concerns. What, then, was so bad in 3D Systems' results to justify Monday morning's 15% haircut?

When records aren't good enough
When all was said and done, the company set new records by growing quarterly revenue by 45.4% to $101.6 million, and full-year sales increased an even more impressive 53.5% to $353.6 million. In addition, the company set a new high mark for gross profit with 2012 non-GAAP earnings per share of $1.25 and GAAP earnings of $0.71.

Naturally, this growth wasn't enough to satisfy investors as fourth-quarter revenue narrowly missed analyst estimates which called for $103.9 million. In addition, the company issued light guidance and now expects 2013 revenue to come in between $440 million and $485 million with non-GAAP earnings per share from $1.00-$1.15 -- after accounting for its recent three-for-two stock split, of course. While this means solid revenue growth between 24% and 37% this year, even at the high end that looks downright sad compared to last year's 53.5% rise.

But that begs the question: Were investors asking too much of 3D Systems? After all, with regard to additive manufacturing, we're talking about an industry which has been around for decades -- albeit primarily serving specialty industrial segments up to this point -- and the fact that revenue growth of this magnitude is still possible simply boggles the mind. That said, even after Monday's pullback, shares of 3D Systems were trading hands for more than 75 times trailing earnings, so it's obvious plenty of optimism is still built into the stock. Even so, we need to remember the $0.71 EPS in the company's press release is not accounting for the stock split, and the company's split adjusted EPS is actually $0.43. This is a great lesson for investors not to just look at a price to earnings ratio online and take it for granted.

Still, as I noted last week, the industry's incredible potential has some convinced 3-D printing could quite literally be the biggest thing since the Internet. Incidentally, that's why I think 3D Systems' primary competitor Stratasys could be another solid winner over the long haul -- which is fantastic considering poor Stratasys found itself once again guilty by association and traded down by as much as 8% Monday morning.

To the patient investors go the spoils
In the end, it's fairly obvious our fickle market loathes being told to hurry up and wait, so it's no surprise that shares of 3D Systems pulled back given the miss. However, I'll reiterate now is not the time to panic and sell your shares of Stratasys or 3D Systems. To the contrary, nothing has happened to significantly change the long-term bull thesis for either company, so long-term investors shouldn't be shaken by the news.

So stand strong, my fellow Fools. The best days are yet to come for 3-D printing.

More expert advice from The Motley Fool
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Fool contributor Steve Symington has no position in any stocks mentioned. The Motley Fool recommends 3D Systems and Stratasys. The Motley Fool owns shares of 3D Systems and Stratasys 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.Editor's note: To clarify the disclosure position outlined above, The Motley Fool owns shares of 3D Systems through both our Supernova and Pro real-money premium services. In addition to the shares it owns, our Pro premium service has written a "covered strangle" options position on 3D Systems, agreeing when the trade was set up to buy more shares at a lower price, or to sell existing shares at a higher price - while maintaining the ability to close either obligation any time. Finally, 3D Systems is a recommendation in Stock Advisor, which is not a real-money service.

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