3D printing losses sink further

3D printing companies have continued to disappoint investors and short sellers have cautiously reaffirmed their positions. With DDD posting another set of poor results, we review the companies attracting highest short interest.

• Short interest in DDD is up by a third in the last seven months
• Average short interest as a % of shares outstanding has risen to 12.75% from 9.7% in the beginning of the year for the 5 major players
• Stratasys’ short interest recently surged above 13%, up 11.14% so far this year

In 2013 3D printing stocks were categorised by strong revenue growth, rising stock prices, and shorts running for the exit after experiencing agonising losses After the likes of 3D Systems and Stratasys returning 860% and 340% respectively, catching short sellers out.

2014 provided an injection of reality. The average return of the five 3D printing companies below was -29% while short interest levels varied from flat to surging in the case of Stratasys. Unsurprisingly, the insanely high valuations at the end of 2013 proved unsustainable.

Voxeljet, the German ADR, proved to be the worst performing of the lot, after an extremely volatile US IPO last October. VJET was listed at $15, soared to $70, and has since crumbled to $19. This is clear evidence that investors are struggling to properly value companies in this transformative industry.

Increased competition

A range of competitors have flooded into the 3D printing market. DDD and SSYS are known for acquiring smaller companies to diversify their product offering, but other tech giants also don’t want to miss out on this growth opportunity. IBM, HPQ and even AMZN have entered the 3D printing market in one form or another. Although the complexity of printing should not be underestimated, these firms have far more resources and may eventually drive margins down.

Average short interest levels in these five major players have increased from 9.7% at the end of last year to 12.75%. Stratasys and 3D Systems are responsible for the majority of this rise.

Shorts piling into DDD and SSYS

3D Systems remains the most shorted company in this space. Short interest in DDD fell to a 12 month low in late November and has since increased 5% points to 19.4%. Although still below the 2014 high of 22.5%, short interest crept upwards going into crucial Q2 earnings results.

Yesterday’s earnings were critical for DDD. Though the company did manage to post a 25% rise in earnings from the same period a year ago, this came in below analyst expectations and ensured that profits trailed estimates for the third quarter running. The firm’s management is hoping that further acquisitions will see the company’s growth continue to accelerate after it bought virtual reality surgical firm Simbionix in a $120M all cash deal. But investors seem to be focusing on weakness in the firm’s core model as DDD shares fell by more than 10% in morning trading.

While DDD provides the mainstay of shorting activity in the space, Stratasys is driving most of the increase as it saw the highest increase in short interest and remains at the highest level we have seen since 2012. Short interest rose from 2.7% at the beginning of the year to 13.8% today as its shares fell from their recent highs.

Andrew Laird, Analyst, IHS Markit

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.