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Short-Squeeze Could Trigger New Highs in 3D Systems

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Short-Squeeze Could Trigger New Highs in 3D Systems

3D Systems (NYSE: DDD) is a leading player in the emerging technology of 3D printing and the stock has become a battleground for investors.

The company is a "provider of three-dimensional content-to-print solutions including 3D printers, print materials and on-demand custom parts services for professionals and consumers." In addition, 3D Systems also provides creative content development and design productivity tools for its customers.

Not only is the company's technology exciting, but its financial metrics also are eye-catching. Revenue went from around $113 million in fiscal 2009 to nearly $354 million for fiscal 2012. Wall Street is projecting that for fiscal 2013, the Rock Hill, South Carolina-based company will report a jump of almost 33 percent in top-line sales to $468.77 million. Current estimates also call for a further 23 percent rise in revenue for fiscal 2014 to $576.79 million.

3D Systems has established itself as a proven secular growth stock, but some investors are skeptical about the company's rich valuation. At current levels, the company commands a lofty market capitalization of around $4.4 billion, yet 3D Systems' only earned $40 million in 2012. Furthermore, the shares trade at a trailing P/E of 106, a forward multiple of 36 and a PEG ratio of almost 3, according to Yahoo Finance data.

These metrics have led traders to aggressively bet on a decline in the share price at some point in the future. In recent days, roughly 31 percent of the stock's float had been sold short. This is an extremely high level of short interest and underscores the general bearish sentiment surrounding the name. These short-sellers, however, may trigger a powerful short-squeeze in the stock if they begin to cover their bets amid rising prices.

Some evidence of this was seen on Monday, when the stock rose 7.50 percent on heavier than usual volume after a brokerage firm upped its price target on the shares. Over the last month, DDD has risen more than 33 percent and the stock is on the cusp of breaking out to new all-time highs. Given this technical backdrop, along with the potentially explosive growth of the 3D printing market going forward, this is a stock that traders will want to keep an eye on for a further breakout.

On Monday, shares closed at $47.15 and are rapidly approaching new highs which would come into play above $48. Momentum right now in this name is clearly favoring the bulls despite the bearish sentiment of short-sellers. In fact, the surging price action in DDD has come despite the fact that the company completed a dilutive share offering only last week.

On Monday, one of the underwriting firms, Canaccord Genuity, released a positive research note on the stock, reiterating its Buy rating and upping its price target from $45 to $50. The positive commentary from Canaccord analyst Bobby Burleson may help trigger even more buying in the name this week.

He expressed confidence in the company's ability to deliver upside to current street consensus estimates "driven by strong printer and services revenue." Burleson also added that "we expect multiple expansion as the company moves into the commercialization phase for Bespoke (carpal tunnel braces) in the second half of this year."

The recent surge in DDD's share price has the stock soaring well above its moving averages and relative strength can be seen in its RSI reading of 80 at the close of trading on Monday. At last check, DDD was trading more than 26 percent above its 20-day moving average, almost 38 percent above its 50-day moving average and a whopping 48 percent over the 200-day.

Given the magnitude of the momentum in the name, some traders may want to wait to enter a long position as a swift snap-back isn't out of the question. If the shares are going to undergo a correction, a logical point of resistance would be just above current prices, at the all-time high of $48.

If, however, the stock is able to cut through this level on heavy volume, driven by short-covering and momentum players, a further near-term rally of 10 percent or more is certainly a possibility. For this reason, traders will want to keep an eye on 3D Systems in the coming days and weeks as profit opportunities on either the long or short side are likely as this name is definitely in play.

Latest Ratings for DDD

DateFirmActionFromTo
Aug 2019DowngradesNeutralUnderweight
Jun 2019UpgradesSellNeutral
May 2019UpgradesUnderweightNeutral

View More Analyst Ratings for DDD
View the Latest Analyst Ratings

Posted-In: Analyst Color News Short Ideas Financing Price Target Technicals Offerings Reiteration Best of Benzinga

 

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