Trade Alert: Some SYNA profits and 3-D printing a big egg
A couple trades I’m making:
I’m going to trim about 1/5th of my Synaptics call options that we’d bought before the earnings report. I’m up more than double on them and I’ve also got a pretty good-sized position in SYNA common stock which is also up nicely.
I’m selling my Stratasys. Mea culpa.
3-D printing is still in its infancy and in ten years, a multi-hundred-billion-dollar industry will be in full-fledged operation. But along the way, the companies driving this new market are going to run into execution, competition and financial problems.
Stratasys, my personal smallest position and sole 3-D printing stock, 3-D printed an egg last night — warning that sales won’t be growing as fast as they’d expected this last quarter and for next year and that margins are continuing to decline.
A few weeks ago, I wrote, “The biggest problem that the 3-D industry has faced is one of declining margins. Sales growth is still very strong, with most analysts estimating the overall industry growing 20-30% annually for the last couple years and the next few years. Stratasys itself should be able to grow its topline another 30-40% this year on top of the 50% topline growth it showed this year.
Stratasys earnings are expected to grow from $2.25 this year to about $3 per share next year, but that estimate has been edging down for awhile now, as analysts tweak their models to reflect the lower margins that are hurting the industry.
At 25x next year’s current earnings estimates for a company that’s growing its topline at 30-40% puts this stock right about in the middle of where it could trade over the next year depending on the margins. Strong margins will get this stock back to its $131 all-time high sometime this year. Weak margins will tank this stock to $50 some time this year.
I’m going to give the company one more quarter to deliver some stronger margins and if this next earnings report isn’t strong in margins with continued topline growth, I might have to cut my ties with this one.
Stratasys will report earnings in early March, so I’m just sitting tight on this, the single smallest position in my own personal portfolio.”
Earnings are now expected to be up just slightly this year and sales growth is expected to be about 20% this year. It’s tough to get excited about a company where the money you keep from each sale is declining, meaning volumes have to go up even more just to keep earnings flat.
I still think Stratasys is the single best run company in the 3-D printing industry, but that doesn’t mean much when the rest of the industry struggling to manage any kind of profitable growth. I’m disappointed in myself for not having sold all my Stratasys back a few weeks ago when I wrote about the concerns I had that the company just said were dead right.
Looking out into the future, I think Stratasys might become a good Revolution Investment possibility, but not until we see at least a couple quarters of growing rather than declining margins. I’ll stay on top of this industry, as the industry itself will grow 20-30% for the next few years and might even accelerate in growth if and when manufacturing conglomerates around the world continue to adopt this technology.
But you know that I preach discipline over growth and I am not going to sit around and let this position fester. 30% smaller than it was yesterday, SSYS is now by far my smallest position, and I’m going to let it go today. I’m removing Stratasys from the portfolio entirely and moving on. Let’s go find us another Synaptics, which reported blow out earnings for last quarter and upside to high growth projections for this year — with, yes, expanding margins.
