In this installment of 3D Printing News Investors Should Know, we’ll be looking at the recent research report put out by Citron Research. Earnings are approaching on Monday morning, and investors in 3D Systems Corporation (NYSE:DDD). have seen shares sell-off by 9% over the past week. This was most likely due to the negative sentiment building up after the release of the report. The real question for investors in 3D Systems, or any 3D printing company for that matter, is whether they should pay attention to reports such as Citron’s. I think you should, and below, we’ll look at what Citron had to say, if we agree, and what investors should really focus on.
As an investor, I think it’s very important to get outside of the cozy nook you call your comfort zone. There’s no better way than to read an article or report that is contrary to your viewpoint. For investors in 3D printing, the Citron report is a great tool to make the skin crawl a bit. The report’s primary purpose is to show how six areas — management, media, analyst, Obama, ignorance of expert opinion, and acquisitions — has created a bubble in 3D System’s shares that is sure to burst.
The long and short of it is that the public has become disillusioned about the actual capabilities of the technology with regard to consumer printers. On that point, I do agree with Citron — the public probably does have an inaccurate view of the time it will take this technology to achieve the grandiose visions held by the media.
The key word there is “public” — if you’re an investor in 3D Systems, Stratasys, Ltd. (NASDAQ:SSYS), or The ExOne Co (NASDAQ:XONE), then none of this information should come as a surprise to you. Investors should be perfectly aware of a potential bubble, and that this is an investment that will not play out in the next five years, but more like the next twenty. Hopefully, that investment is a responsible one of small size within the context of your portfolio, because betting the house on one company in an industry in such early stages would be ill-advised. While the report did raise commonly held concerns, there were a few cases I felt investors needed to dig into.
Problems with the report
While I did agree with the report’s overall message that the valuation of 3D Systems is getting a little bubbalicious at a 12 trailing months earnings P/E of 83, I did take exceptions to the following — The Motley Fool and printer comparison.
To address the first issue, it seems there has, unfortunately, been some confusion from investors on the official position of the Motley Fool in shares of 3D Systems; below is an expanded disclosure explaining the various positions we hold. There was also a quote from a research report taken out of context related to R&D and competitors. The quote in question is meant to show how it’s cost prohibitive for competitors to develop professional-grade printers, and how 3D systems spends more on R&D in absolute dollars than any of its competitors. While this R&D spending is very low as a percentage of revenue compared to other industries, it’s still the largest in 3D printing today.
