Stratasys (SSYS) on Growth Trajectory: Should You Hold?

Buy or sell dice

A successful portfolio manager understands the importance of adding well-performing stocks at the right time. Indicators of a stock's bullish run include a rise in its share price and strong fundamentals.

One such stock that investors need to hold on to right now is Stratasys Ltd.SSYS . Though there are a few concerns, these are short-lived. So, the stock has the potential to perform well in the long run.

The stock returned approximately 12.9% in the past three months, outperforming the Zacks categorized Computer-Peripheral Equipment industry's gain of just 9.2%.

What's Driving the Stock?

The benefit from improved pricing is well reflected in the company's last quarterly results. The company's fourth-quarter 2016 revenues not only increased 1.1% year over year to $175.3 million, but also surpassed the Zacks Consensus Estimate of $170 million. The company's timing of new product introductions and improved organizational changes at MakerBot benefitted the quarter's revenues.

The company reported adjusted income per share (excluding amortization, impairment and other one-time items but including stock-based compensation) of 9 cents. The Zacks Consensus Estimate was of a loss of 6 cents per share. In the year-ago quarter, the company had incurred a loss of 19 cents.

An encouraging top and bottom-line performance, way above the respective Zacks Consensus Estimate, helped in boosting investors' confidence in the company's prospects.

Moreover, the 3D printing market presents a favorable long-term investment opportunity. This is because a large number of engineers, designers, architects and entrepreneurs are resorting to 3D solutions for their primary designing and product modeling. According to market research firm CONTEXT, over half a million 3D printers have already been shipped across the globe between the 1980s and mid-2015 and the industry is currently on track to ship its millionth unit by 2017.

Data from the Wohlers Report 2014 revealed that the worldwide 3D printing industry is expected to grow from $3.07 billion in 2013 to $12.8 billion by 2018, and exceed $21 billion by 2020 at a CAGR of 34%. Being the industry leader in 3D printing, this is encouraging for Stratasys, as it should be able to grab a large share of this market.

Stratasys has been scaling newer heights across all its business segments. In the last few months, the company has inked strategic partnerships to fuel its growth momentum. The 3D printing company recently entered into a few strategic partnerships with the likes of Schneider Electric, The Boeing Co., Ford Motor Co. and Siemens.

The collaborations are aimed at introducing advanced 3D printing technologies to the aerospace and automotive industries. The deal is a strategic move by Stratasys to expand its geographic reach and drive market penetration. Both these partnerships spell opportunities for Stratasys' 3D systems business and will increase its installed base.

Risks Remain

Some customers are delaying their purchases owing to the current economic conditions. In the 3D printer business, the majority of customers have moved toward the lower-priced uPrint, which might affect the company's margins in the upcoming quarters. Going forward, competition from 3D Systems Corporation DDD is also a potent headwind.

Bottom Line

Notably, the company is on a growth trajectory, gathering momentum from its positive earnings surprise history and strong fundamentals. It posted a positive earnings surprise in all the last four quarters, with an average positive surprise of 114.4%.

Given that the company's long-term earnings per share growth rate is 12.5% and has a Growth Style Score of "A", we believe that the stock still has much upside potential. We can essentially filter the negatives and focus on the positives which drive price.

Stratasyscarries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader technology sector are Seagate Technology plc STX and Western Digital Corporation WDC , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Seagate and Western Digital have a long-term expected earnings growth rate of 8.17% and 12.11, respectively.

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3D Systems Corporation (DDD): Free Stock Analysis Report

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Stratasys, Ltd. (SSYS): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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