Stratasys (SSYS) is hardly in good company as its competitors struggle. Voxeljet (VJET) posted falling revenue. 3D Systems (DDD) is pivoting its business by focusing on Healthcare and Industrial but taking a restructuring charge. What, if anything, is compelling with Stratasys following the 3D bubble stock crash of 2011–2014?
Stratasys is now a micro capitalization stock speculation. At a market cap of $777 million but short interest topping 19.93%, trading this stock is a gamble. Here on Seeking Alpha, the stock is “not covered.” Its quant rating is bearish:
Stratasys Sales Pitch
Stratasys said in its Q2 earnings call presentation that it has one-third of the 3D printing hardware addressable market. The TAM in 2019 was $5 billion: $2.4 billion in manufacturing and $2.6 billion in prototyping.
The company’s strategy for winning more of the additive manufacturing market is a go-to-market approach, offering comprehensive solutions, and specializing in the polymer industry. If it doubles its market share, Stratasys may reverse the Y/Y revenue decline and grow margins.
In Q2, Stratasys posted revenue falling 27.9% to $117.6 million. Gross profit nearly halved to $43.7 million (on a GAAP basis). It lost $28 million or 51 cents a share.
Data courtesy of Stratasys
Expenses, down 9.2%, are not falling fast enough. Cash is on the decline and inventories are up. Speculators may overlook the Q2 drop due to COVID. Supply chain disruptions, the economic slowdown, and limited visibility ahead forced management to withdraw its full-year guidance.
Trading Opportunity in SSYS Stock
The company has a long-term growth potential with its metal technology. But it is not there yet. CEO Yoav Zeif said, “it has a different value proposition and it’s still in a nurturing incubation stage. And it will not be the one that will generate growth in the short-term.”
MakerBot, which with 20/20 hindsight proved an expensive acquisition, is a leader in metal manufacturing. As the company focuses on polymers, MakerBot gives it a competitive advantage. Investors should note the high goodwill percentage of 29.3%, as flagged from the Stock Rover research. Also, the combination of falling revenue and higher average shares diluted between 2015 and 2019 is a red flag:
The company may have more write-downs soon unless it leverages its massive infrastructure at a faster pace. It does not have financial flexibility in investing heavily in the business. For now, key industry customers have FDM Machines. Still, the company indicated on the conference call that it is in the discussion phase with manufacturers and producers. Until they understand the manufacturing needs Stratasys offers, revenue is not likely to expand for at least a few quarters.
The J55 3D Printer for the office is a potential positive catalyst. It is affordable for designers and brings design capability to the next level. Assuming the economy is on the rebound, research and development spending would hold or increase from here. Customer spending for such products would increase.
The 2019 takeover of Xaar 3D may bear fruit soon. It will launch Xaar products, although CEO Zeif did not give any specific dates. If the market is receptive to it and is not saturated with new products, a Xaar product launch is a potential revenue generator for Stratasys.
Price Target and Your Takeaway
The average price target on Stratasys, according to TipRanks, is $20.00. This implies an upside of almost 40%. And although analysts did not post any new research in at least two weeks, bottom fishers may start a position at the $14.00 bottom.
As it happened in March, 3D Systems spiked a few times on its way up and on the way down.
SSYS might offer similar trading opportunities. To buy and hold it for the longer term, the company needs to first post consistently growing revenue and profits.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.