A scan of 3D Systems shows money is better spent elsewhere
Tuesday, April 21st, 2014
Unfortunately, former San Diego Charger Dwight Freeney has joined a list of star athletes who got burned on his investments.
Freeney, now a free agent, had gone to Bank of America — which now owns investment firm Merrill Lynch — after being burned by a couple of other financial advisers. To summarize briefly, Freeney alleges he was led down a path of an elaborate investment scheme that ended with him losing all his money.
And while some of the suspects could end up in jail, I would be surprised if Freeney were to receive 10 to 20 cents on the dollar of his $20 million, after it is all said and done.
I have written many times that investors must understand what the adviser is doing. I have been told by some people that my portfolios are too risky because I primarily invest in stocks — even though I do an exhaustive amount of research before we buy any company and continue to stay on top of the stock and of the business that we own.
To help future investors not to go the route of Freeney, make sure that the adviser you are using is educated in true investing and is not just a slick salesperson who makes you feel good about what he or she is doing.
Once again, I will recommend that investors invest wisely using fundamental analysis in small pieces of large companies known as stocks. And also, those stocks should be from American businesses that use generally accepted accounting principles to report their earnings, also known as GAAP.
At Wilsey Asset Management, we handle large accounts and I've never found the need or desire to make a large commission or to try to impress people and use investments that I hate, such as alternative investments.
I often say that stocks are not risky; what people do with stocks is what makes them risky.
In August, I wrote about 3-D printers, specifically 3D Systems Corp. (NYSE: DDD). I mentioned at that time that 3-D printer stocks were the rage and everybody wanted to get into them.
I pointed out that in January 2014, 3D Systems Corp. stock had reached $100 per share. Since then, the stock has been cut by more than half to just over $30 per share as of Friday morning.
If people thought that was a bargain after they read my column before they invested, I hope they realized that at projected earnings for December 2015 of $1.19, it was just too expensive.
Fast forward to now. I can see that the new GAAP estimate is 40 cents per share, and going out to December 2016 the estimate is 71 cents per share.
With the stock currently trading around $30 per share, I see that the forward PE is still high at 45 times earnings. The pro forma earnings estimates for December 2016 are far better, coming in at $1.25 per share right off Yahoo Finance.
So based on these earnings estimates, it would appear to me that the stock could fall more.
For further verification that this company is overpriced, one can also look at the price to cash flow over the past 12 months at 54 versus the industry average at 9.8. Investors may get excited about the sales growth of 27 percent year over year for the past 12 months.
Unfortunately, over that same time, earnings fell by 75 percent when the industry had growth on the earnings per share of 19 percent.
The company has a strong balance sheet and no threat of going bankrupt anytime soon. The current ratio is 3.9 — much higher than the industry at 1.3. The industry has a debt to equity of 31.2, while 3D Systems Corp. has a debt to equity of only 0.74.
There are two things that concern me. First, the receivable turnover for the past 12 months was 4.4 for the company, well below the industry average of 7.7. Second, if 3-D printers are so hot, I would think the inventory turnover of 3.9 would not be under the industry average of 15.1.
I know this stock could go up on momentum, but the fundamentals do not justify that. This is where investors, including Freeney, have to decide to find a company that is a better value rather than risk money on a high-flier.
I wish Freeney luck on his lawsuit. I hope he can get some of his money back. But more important, I hope he has learned to understand more about investing and will read my columns, follow my daily post on social media and listen to my radio show on Saturday mornings or podcast to start getting a foundation in investing before he loses any more money.
Do you have a question or a company you'd like me to take a look at? Email me at Brent@WilseyAssetManagement.com!
Wilsey is president of Wilsey Asset Management and can be heard at 8 a.m. every Saturday on KFMB AM760. Information is provided by Reuters.
Sign up for our free weekly e-newsletter for economic updates, investment advice, and various company analyses. Articles are written by well renowned investment expert Brent Wilsey. Please visit our Archived Newsletters tab to view past articles.
Would you like the Smart Investing E-Newsletter sent to your inbox every Tuesday?