Now Ev’ry gambler knows that the secret to survivin’
Is knowin’ what to throw away and knowing what to keep. – Kenny Rogers, The Gambler
I’m closing out two of our long positions with big gains and putting a check in the win column on each. Let’s just jump right in, shall we?
I’m torn on what to do with our $DDD position, that has been a big winner for us, as part of our 3-D Printer Stock Basket. But I’ve long struggled getting comfortable with management there and have worried that there’s more hype and roll-up risk than management lets on there. On the plus side, DDD really does have some compelling 3-D Printing consumer-focused products and have done a good job of consolidating the industry using their highflying stock as currency to do so.
On the other hand, margins in the consumer-focused side of the 3-D Printing industry is starting to show some margin pressure and prices are falling faster than costs are. Our $SSYS and $XONE, which are more focused on the industrial side of the 3-D Printing industry, are showing stronger pricing and margins than DDD is.
Finally, the biggest problem I’ve long had with DDD’s management is my impression that they are catering more to Wall Street and trying to keep their highflying stock hyped up. And as I’d noted earlier the hype was thick in their recent release, “Compared to its expectations, the company experienced much stronger professional 3D printers and materials demand and softer on-demand parts and consumer demand during the fourth quarter. As a result, the company expects to report its December backlog nearly doubled sequentially to $28 million which included multiple advanced manufacturing 3D printers orders that it plans to deliver over the next year.”
Meanwhile, the company later gets to the juice, buried deeper in the press release, as if people were going to ignore it or something: “The company expects its non-GAAP earnings per share to be in the range of $0.83 to $0.87, below its previously expected guidance of $0.93 to $1.03 and its GAAP earnings per share to be in the range of $0.43 to $0.45.”
DDD’s up 25% since its lows the morning it preannounced ugly earnings and guidance in a hype-filled press release. That’s a classic example of why not to sell on emotion. Emotions are the enemy of successful trading and investing. Now we can make our decision on DDD with a clearer head and more capital than we would have were we doing it in a fit of anger (or vice versa, in joy or whatever emotion).
At any rate, the point is that “discipline trumps conviction,” and I’m going to pull the plug on our DDD long in the basket today and just continue to ride the XONE and SSYS for our basket. There are other 3-D printing stocks out there, including $VJET and $ONVO but I think we have the best two already in the portfolio with XONE and SSYS.
Some investors and analysts are talking about the possibility that a bigger company comes in and bids for TQNT and/or RFMD before this deal gets done, but I’m not going to let my capital sit there betting on that. Neither RFMD nor TQNT have done a good job of managing their businesses during this boom/bubble part of a tech stock/economic cycle that many of their competitors have managed to do.
I might come back and buy the companies after they’ve reported a couple quarters as a combined entity if they’re showing that the merger truly rationalizes their businesses, jump starts their margins and gets the cash flowing with nice topline growth. We’ll see how the fundamentals progress but not with our capital at risk for now.
Kenny Rogers – The Gambler [Original Video-Edit] 1978