3D Systems Corporation’s (NYSE:DDD) stock is so ugly, the tide wouldn’t take it out.
When an asset has suffered through an extended bear market, people start to throw in the towel. Mention the asset to someone at a cocktail party and their face will cringe. Publishers know the topic will disgust readers, so you stop seeing it mentioned on magazine covers.
It’s around this time when most people can’t stand the thought of buying this asset, which will start to trade at a fraction of its real value. In this kind of bad condition, you can often scoop up assets for pennies on the value. If even an ounce of optimism returns to the market, savvy investors can double or triple their money quickly.
This is exactly the type of situation we’re seeing in 3D Systems at the moment.
From 2010 to 2014, 3D printing stocks captured the imagination of Wall Street. Rather than just printing out words and pictures to a piece of paper, people could suddenly print out everything from guns, to toys, to tools from their basements. And between 2010 and 2014, shares of industry leader 3D Systems stock climbed from $10.00 to $97.00,
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Needless to say, the excitement couldn’t last forever. At the start of 2014, waning investor enthusiasm sent shares plummeting nearly 50%. After finding a brief period of support, 3D Systems shares started to sag last summer, plummeting another 60% over the next few months.
The stock has now been abandoned by the investment community and rarely mentioned anymore in the mainstream media. Today, 15 analysts rate the stock a “Hold.” That’s a code word in Wall Street lingo for “Get the heck out.” Shares trade at a meager two-times sales (cheap for a fast-growing technology stock) and not a single analyst rates the stock a “Strong Buy.”
Needless to say, this is about as down-in-the-dumps as you can get. But the question is; has 3D Systems’ stock finally bottomed? For that, we need to consult the charts.
Chart courtesy of www.StockCharts.com
During the bubble years, DDD stock exhibited the classic bump-and-run pattern.
During the lead-in phase, prices advance in an orderly manner. There’s no excessive speculation as investors bid up shares in response to growing earnings and improving fundamentals. Next comes the bump phase where retail investors start bidding up the stock beyond reason. Finally, comes the run, or the bust. Without a steady stream of new investors to push up prices, any selling explodes into full-out panic.
How far can prices fall? In a typical bust, it’s not uncommon to see prices fall all the way back to the beginning of the lead-in line. Markets need to overcorrect to the downside in order to wash out all of the speculators.
In the case of 3D Systems, this would see prices fall to around the $10.00 level. That would be welcomed news for shareholders. Based on this, DDD stock could be nearing a bottom.
This is not a recommendation to run out and buy 3D Systems, however. Rather than trying to catch a falling knife, investors should wait for the stock to carve out a bottom and resume a new uptrend. If that happens, a run to $20.00, $30.00, even $40.00 would not be unsurprising.
Bottom line: the worst is over for 3D Systems.