The article was written by Ayush Singh Tip Ranks #4 Financial Blogger – Senior Analyst at I Know First. 

DDD stock forecast

• Due to the bearish market sentiment, 3D Systems is poised to fall.
• 3D Systems failed to provide earnings and revenue guidance for the upcoming quarter and will likely miss the consensus targets again.
• Goodwill impairment charges and high cash-burn rate will eat into 3D Systems already-diminishing cash position.
• Despite the fall from “grace”, 3D Systems still has about 40% downside potential.

The earnings season has kicked off, and investors are likely staring down the barrel of a gun as things can get ugly in the coming weeks. Wall Street has made the worst ever start to a year, and while many investors are buying the dip, I think the market selloff will likely continue due to a weak earnings season.

In addition to the market-wide correction, investors are looking at the prospect of four straight quarters of earnings declines. Given the increasing strength of the U.S. dollar, I believe it another quarter of earnings decline is likely. The market sentiment is already bearish and another quarter of earnings decline can further fuel the stock market correction.

(Source: MarketWatch.com)

While picking a winning stock is difficult when the market is in correction mode, I firmly believe that investors can profit from it by shorting stocks that are prone to plunging after the earnings season. One stock that I think investors can short heading into earnings is 3D Systems (DDD).

Why 3D Systems is Short

As you can see from the image below, over the last two years, I have recommended investors to short/sell 3D Systems and my calls have been accurate every time. 3D Systems has been one of my best short calls as the stock is down from over $92 to under $6.7. Despite the massive correction, I think investors can still short the stock as it has more downside potential. Over the years, I have revised my price target for 3D Systems downwards many times, and I have been successful on every occasion.

(Source: TipRanks.com)

3D Systems is expected to share its Q4 earnings reports in the last week of February. Analysts are expecting 3D Systems to report earnings of $0.03 per share on revenues of $161 million. In Q4 FY2014, 3D Systems reported revenue of $187 million whereas its EPS came in at $0.21.

Both earnings and revenue are expected to fall considerably, however, given that the management failed to provide a guidance for the upcoming quarter, I am confident that 3D Systems will fail to meet the consensus targets…again.

A string of acquisitions propelled 3d Systems’ growth in 2014. In fact, 3D Systems went on an acquisition spree in 2012 and acquired almost 50 companies in the next 30 months. However, now that the 3D printing bubble has popped, all those acquisitions are coming back to haunt 3D Systems. Organic sales are falling in the double digits whereas the company is losing money at a very fast rate.

But what makes the matters worse for 3D Systems are the impending goodwill impairment charges. 3D Systems primarily rival Stratasys (SSYS) has already paid hundreds of millions of dollars in goodwill impairment charges for its acquisition of MakerBot. Given that 3D Systems has acquired a lot more companies than Stratasys, the company will also have shell out millions of dollars in goodwill write-offs.

The potential of goodwill write-offs is not good news for 3D Systems as the company has under $150 million in net cash. I fact that 3D Systems is already cutting costs by slashing workforce implies that the company is worried about the charges. The combination of goodwill impairment charges and another quarter of steep losses will eat into 3D Systems cash reserve at a rapid speed.

Another disappointing quarter and the goodwill impairment time bomb will inevitably push 3D Systems stock lower. The market sentiment is already bearish, and investors shouldn’t make the mistake of thinking that 3D Systems has bottomed. Despite the massive plunge, I think 3D Systems has more downside to offering and is short.

Conclusion

Many investors believe that buying the current dip will be a good strategy in the long-term, which is true if you pick the right companies. I, on the other hand, believe that investors can benefit from the selloff by shorting the right stocks. And 3D Systems is one stock that I think investors can still short.

3D Systems is burning cash at a very fast rate, and the impending goodwill impairment charges will put further downward pressure on the stock. So, despite 3D Systems massive plunge, I think the stock hasn’t bottomed and has a lot of room to fall. Moreover, given the bearish market sentiment and the potential of a fourth straight quarter of earnings decline, I think 3D Systems can still fall about 40%. Hence, I think investors should short the stock.

My negative outlook on 3D Systems resonates with the bearish algorithmic forecasts of I Know First. I Know First uses an advanced state of the art algorithm based on artificial intelligence and machine learning to foresee market performance for more than 3,000 markets including stock forecasts, world indices, commodities, interest rates, ETFs, and currencies.  Dr. Roitman, who created the algorithm, created rules for entry for a stock such as Apple or DDD. Using this trading strategy, an investor should buy a stock if the last 5 signal strength’s average is positive and if the last closing price is above the 5-day moving average price. When both of these conditions are met, it is a good time to initiate a position in the stock.

The algorithm generates a forecast with a signal and a predictability indicator. The signal is the number at the center of the box. The predictability is the figure at the bottom of the box. At the top, a particular asset is identified. This format is standardized across all forecasts. The middle number indicates strength and direction, not a price target or percentage gain/loss. The bottom figure, the predictability, signifies a confidence level.

As you can see from the chart above, the red -446.71, -691.20 and -1305.74 one month, three months and one year forecast from I Know First indicates that even at less than $6.7, 3D Systems is overvalued and has a lot more downside potential. Hence, I think investors should initiate a short position in 3D Systems.

Previously I Know First predicted the movement of DDD stock in this forecast from the 5th of January 2016. DDD showed a signal of -69.40 and a predictability of 0.3 and only 14 days later brought returns of 32.55%. The overall Tech Stock Package brought very nice returns of 21.10% to all investors that invested equally in the package, over performing the S&P500 which managed a -6.53% return during the same period.