WASHINGTON, DC — Thanks to 3D Systems (NYSE: DDD.US), 3D printing stocks are taking a beating. The 3D printing giant released its preliminary 2013 full-year results and issued 2014 full-year guidance, and the market didn’t take kindly to the news. Shares of 3D Systems were down as much as $21 a share during the trading session yesterday, losing about 28% of its market value. The news also brought down Stratasys as much as 13%, ExOne down as much as 15% and voxeljet down as much as 14%.

Why the wheels fell off

Investors reacted so poorly to the news because the company lowered its full-year 2013 earnings guidance, and its full-year 2014 earnings guidance came in much lower than expectations. Originally, 3D Systems was expecting to earn between $0.93 and $1.03 per share in 2013 on an adjusted basis, but now expects to earn between $0.83 and $0.87 per share.

The company’s recent plan to accelerate its R&D investments and increase its sales and marketing expenses, along with generally higher costs related to making acquisitions, are playing into why 3D Systems lowered earnings guidance. The hope is that these increased investments in the short term will deliver superior results over the long term. However, investors should recognise 3D Systems’ R&D expenditures as a potentially major risk to the long-term story.

Prior to yesterday’s announcement, analysts were expecting 3D Systems to earn $1.27 a share on an adjusted basis in 2014 – far above the $0.73-$0.85 a share the company expects to earn in 2014.

It’s not all bad news

Despite all the negativity, there were a few notable bright spots to suggest that 3D Systems’ long-term story is still on track. The company expects to double its revenue over the next couple of years, and sustain a 30% organic growth rate, adjusting for recent acquisitions. Considering the 3D printing industry as a whole is expected to grow by around 20% year, this suggests that 3D Systems will be gaining market share in the years ahead. Over the long term, this increased market share could lead to increased material sales, which could boost long-term profitability, primarily because 3D printing materials remains 3D Systems’ most profitable business segment.

In addition, the company’s backlog has nearly doubled to $28 million on a sequential basis, indicating that demand for its products, including the high-end, remains strong. This could be viewed as an encouraging sign that 3D Systems’ new products are being well received in the market place.

The million-dollar question

As advocates of long-term investing, we Fools believe that it’s important to monitor big price moves to ensure major developments haven’t materially changed the long-term-investment thesis. Although it’s never fun losing 15% or 20% of your investment in one day, it’s extremely important to divorce your emotions from the equation and look long and hard at whether these developments will affect the long-term business underneath, and warrant taking action.

The truth of the matter is that 3D Systems told investors during its third-quarter conference call that it expects its 2013 full-year-earnings guidance will come in lighter of expectations because of its aggressive growth initiatives; today’s update is merely a revision to that development, and only affects the bottom line. I’d be a lot more worried if revenue guidance was lowered significantly, because it could indicate the there may be structural issues with 3D Systems’ business. In other words, I currently don’t think there is enough here to warrant selling your shares today.

Ultimately, 3D Systems’ management appears to be sacrificing short-term profitability in exchange for long-term future earnings potential. For investors, it’s encouraging to see a management team that’s more committed to the long-term story than it is with making short-term trade-offs just to please Wall Street expectations. If you’re willing to go along for the wild ride, I think investors will likely be well served by sticking with this line of thinking. As a 3D Systems shareholder, I’m holding on tightly today.

The post Why 3D Systems Corporation Caused 3D Printing Stocks To Crash appeared first on The Motley Fool UK.

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> Steve owns shares shares in 3D Systems.

WASHINGTON, DC — Although 3D Systems (NYSE: DDD.US) may be the biggest, most diversified, 3-D printing company around, it’s not immune to risks that could negatively affect its business. If you’re a 3D Systems investor, it’s important to familiarize yourself with any major risks that could materially change your long-term-investment thesis. This exercise will likely prove to be valuable during time of negativity, not to mention that it challenges any confirmation bias you may have.

Spread too thin

At last count, 3D Systems has a total of seven different 3-D printing engines, or different types of 3-D printing technologies in its portfolio. This has made the company extremely well equipped to adapt to the rapidly changing environment of 3-D printing and gives it the opportunity to compete in more 3-D printing verticals than any of its competitors.

However, having too many 3-D printing engines makes the company susceptible to becoming a jack of all trades, and a master of none. As a result, 3D Systems has to carefully allocate its resources in terms of not only research and development spending, but also human capital. From an operational perspective, too many product divisions could create unforeseen friction, conflict, and inefficiencies across the company.

A seven-engine car needs a lot more work

Because 3D Systems has seven different 3-D printing engines, its R&D liability is far greater than competitors, putting it at a serious disadvantage compared to Stratasys, which offers only two different 3-D printing engines. Hypothetically, if $100 of R&D spending was split equally across their respective printing engines, about $14 would be allocated toward each of 3D Systems’ seven printing engines, and $50 would go toward each of Stratasys’ engines. In this instance, 3D Systems would need to spend about 3.5 times more per printing engine to match the same level of R&D that Stratasys is investing into each of its engines.

Not only does this put pressure on 3D Systems to invest more into R&D than Stratasys, it creates a potentially troubling situation where R&D becomes a runaway expense that erodes earnings potential. This is especially true if 3D Systems wants to continuously innovate and invest in each of the 3-D printing verticals it competes in. In addition, 3D Systems’ management has a much tougher job determining how to effectively allocate its R&D spending across its printing engines than Stratasys’ management team does.

A cancerous sign

As former Costco CEO Jim Sinegal once put it, “Culture is not the most important thing — it’s the only thing.” Undoubtedly, a business that creates an enduring culture with a higher sense of purpose has a huge competitive advantage over its peers. The reason being, culture-driven organizations put employees and the company’s higher purpose before its profits, creating an environment that empowers the business to achieve amazing operating results over the long term. For a company that’s working to solidify its long-term positioning in the 3-D printing industry, it’s extremely important for 3D Systems to have its employees and company’s purpose in alignment.

According to anonymous employee data compiled by Glassdoor, 3D Systems employees are “dissatisfied,” rating the company 2.2 out of five stars. Additionally, only 17% of employee reviews approve of CEO Avi Reichental’s job. It’s worth noting that only 19 employees have rated their work experience at 3D Systems and only 12 have rated Avi Reichental. Still, these early indications call for keeping an eye on this potential structural issue, because a culture where employees are dissatisfied often creates a ripe breeding ground for businesses that deliver subpar operating results over the long term.

What this means for investors

When a stock like 3D Systems has had an incredible run based on its future growth potential, its current valuation becomes stretched by nearly every metric imaginable. As a result, the need for the company to execute almost flawlessly has grown increasingly stronger. Should there be a misstep or two along the way, the bullish sentiment about 3D Systems will likely crater, and investors are almost certain to face losses. Being aware of these risks will help you determine whether or not action is warranted during times of negativity.

As a 3D Systems shareholder, these risks currently aren’t enough of a threat for me to take further action today, but it’s definitely enough of a reason for me to not increase my position at current prices.

The post 3 Major Risks For 3D Systems Corporation appeared first on The Motley Fool UK.

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> Steve owns shares in 3D Systems.