Office Depot and OfficeMax are going to counter this trend from a pure cost-cutting perspective. They’ll merge their companies, trim the fat, close quite a few stores, and pray that they don’t send too many of their faithful customers to Staples with their store closures and inevitable integration issues. My projection is that it could take two years, or more, for this newly combined entity to find its footing and realize any demonstrable synergies. That’s more than enough time for Staples to accrue an additional 2%-3% benefit to its U.S. sales, tack on additional market, and assert itself as the clear office-supply leader both in the bricks-and-mortar, and possibly online, space. My suggestion is to let the short-sellers pick this deal apart like vultures that they are.
One degree of separation
The story of 3-D printing specialists 3D Systems Corporation (NYSE:DDD) and Stratasys (NASDAQ:SSYS) are actually quite similar. Both have taken to growing aggressively through acquisitions, and both are relying on the inescapable truth that we as investors are awful predictors of precisely when a new technology becomes truly feasible.
The way I see it, there’s only one degree of separation that matters between Stratasys and 3D Systems — their bottom-line profits. In Stratasys’ fourth-quarter report at the beginning of March, it delivered 23% sales growth and a forward looking adjusted profit projection of $1.80-$1.95. Much of this growth relates to its merger with Objet, a 3-D printing company that can offer significantly more diverse and rapid prototyping to the enterprise market.
3D Systems Corporation (NYSE:DDD), on the other hand, fell short of the Street’s fourth-quarter sales estimates by $2.3 million. Furthermore, its full-year EPS forecast of $1.00-$1.15 met estimates, but it seemed a bit disappointing given how quickly it had been growing. I think another key point worth noting here is that 3D Systems has made 31 acquisitions in three years and integration issues are bound to come up. Most investors have little clue how to value these companies yet, and I’d just as soon let the short-sellers have their way with 3D Systems until the bottom-line results become more in line with top-line expectations.
Foolish roundup
This week’s theme is simple: Short-sellers, they’re all yours! Lowe’s Companies, Inc (NYSE:LOW) hasn’t shown any real ability to close its underperformance gap with Home Depot, Office Depot is going to struggle mightily to both Staples and online competition, and 3D Systems Corporation (NYSE:DDD) is going to cope with a frothy valuation and an ongoing amalgamation of acquisitions.
What’s your take on these three stocks? Do short sellers have these stocks pegged, or are they blowing smoke? Share your thoughts in the comments section below.
The article Shorts Are Piling Into These Stocks. Should You Be Worried? originally appeared on Fool.com.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool recommends 3D Systems, Apple, Home Depot, Lowe’s, and Stratasys; owns shares of 3D Systems, Apple, Staples, and Stratasys; and has options on 3D Systems. The Motley Fool.
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