Shares of Stratasys Ltd. SSYS plunged to a new 52-week low of $21.50 on Jan 8 and eventually closed at $21.77, representing a one-year decline of 71.2%. Average volume of shares traded over the last three months was more than 1,065k.
Why the Plunge?
Over the past few quarters, Stratasys has been experiencing unfavorable broader market conditions that have badly hit its financial performance.
Unimpressively, Stratasys provided weak fourth quarter guidance, reflecting uncertain global macroeconomic conditions, unfavorable currency exchange rate and weak performance by its MakerBot business.
For the fourth quarter of 2015, the company expects revenues in the range of $160 million to $175 million. The Zacks Consensus Estimate is pegged at $166 million. Non-GAAP loss per share is projected between 6 cents and 17 cents.
We remain concerned about the company’s declining margins, which have been impacted by incremental sales generated from lower-margin products of newly acquired businesses including MakerBot, Solid Concepts and Harvest Technologies.
Apart from this, higher sales, marketing and R&D expenditures weigh on the company’s margins. Moreover, the company is projects its operating expenses to increase over the next two to three years as a result of its new investment plans, which aim at achieving annual revenue of $3.0 billion in 2020.
Additionally, some customers are delaying their purchases owing to the current economic conditions. In the 3D printer business, the majority of customers have gravitated toward lower-priced uPrint, which may affect the company’s margins in the upcoming quarters.
Stratasys has a high cost structure and remains in the investment mode. In 2014, operating expenses surged over 100% from the year-ago period due to increased investment in new products as well as increased headcount. As a result of its recently announced plans to invest in product and infrastructure development, the company expects incremental annual operating expenditure of 2% of anticipated revenues over the next two to three years.
Notably, during second quarter 2015, the company’s adjusted operating expenses increased 23.6% year over year. Considering the evolving nature of the 3D printing market and the high cost of operations associated with it, we believe that much of the company’s long-term profitability will depend on efficient cost management.
Going forward, competition from 3D Systems Corporation DDD remains a headwind.
Currently, Stratasys carries a Zacks Rank #3 (Hold).
However, some better-ranked stocks in the technology sector are Amazon.com Inc. AMZN, and Integrated Device Technology Inc. IDTI, both of them carrying a Zacks Rank #1 (Strong Buy).
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