The macroeconomic challenges have kept the tech industry under pressure. Here are two tech stocks, 3D Systems Corporation (DDD) and Velo3D, Inc. (VLD), which are best avoided, considering their weak fundamentals.
A recent Deloitte survey revealed technology decision-makers’ top strategic concerns for the next two to three years, in which macroeconomic uncertainty topped the list, followed by workforce issues and then the competitive landscape. Geopolitical and regulatory tensions also worry the respondents.
Moreover, the rate hikes delivered by the central bank since March of 2022 have pushed the benchmark overnight interest rate from the near-zero level to the current 4.75%-5.00% range. The surge in interest rates negatively affected the tech industry’s performance last year and might blow a brutal hit to the industry's earnings.
Additionally, the tech sector has been hit by waves of job cuts due to slowing sales growth amid weakening demand. Furthermore, digital advertisers are reducing their spending due to inflation, leading to challenges for tech companies that rely heavily on advertising revenue.
Despite its potential, the growth of the 3D printing market is hindered by significant barriers. The high initial cost, particularly for individual users, and the expensive software tools required for operation result in an inflated manufacturing process.
Take a look at the stocks mentioned above:
3D Systems Corporation (DDD)
DDD provides 3D printing and digital manufacturing solutions in the Americas, Europe, the Middle East, Africa, Asia Pacific, and internationally.
DDD’s forward EV/Sales of 1.89x is 23.3% higher than the industry average of 1.53x. Its forward P/S multiple of 2.01 is 59.7% higher than the industry average of 1.26.
DDD’s trailing-12-month gross profit margin of 39.82% is 33.4% lower than the 29.85% industry average.
DDD’s non-GAAP revenue decreased 12% year-over-year to $132.73 million during the fourth quarter that ended December 31, 2022. Its non-GAAP operating loss came in at $9.91 million, compared to an income of $12.36 million in the previous-year quarter. Also, its non-GAAP net loss came in at $7.47 million, compared to net income of $11.57 million in the previous-year quarter.
Also, its non-GAAP loss per share came in at $0.06, compared to income per share of $0.09 in the previous-year quarter.
Analysts expect DDD’s revenue to decline 3.4% year-over-year to $128.44 million for the fiscal first quarter that ended March 2023. Its EPS is expected to decline 21.6% year-over-year to negative $0.07 for the same quarter. Also, the stock failed to surpass the EPS and revenue estimates in three of the trailing four quarters, which is disappointing.
The stock has declined 27.5% over the past year to close its last trading session at $8.87. It has a 24-month beta of 2.23.
DDD’s POWR Ratings reflect this bleak outlook. The stock has an overall D rating, equating to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
DDD is also graded an F in Sentiment and a D in Quality and Stability. It is ranked #3 among six stocks in the F-rated Technology - 3D Printing industry.
In addition to the POWR Ratings stated above, DDD’s grades for Growth, Value, and Momentum can be seen here.
Velo3D, Inc. (VLD)
VLD produces metal additive three-dimensional printers in the United States and internationally. The company's printers enable the production of components for space rockets, jet engines, fuel delivery systems, and other high-value metal parts, which it sells or leases to customers for use in their businesses.
VLD’s forward EV/Sales of 2.70x is 75.9% higher than the industry average of 1.53x. Its forward P/S multiple of 3.16 is 150.9% higher than the industry average of 1.26.
The stock’s trailing-12-month asset turnover ratio of 0.31x is 61.9% lower than the 0.80x industry average. Its trailing-12-month gross profit margin of 3.58% is 88% lower than the 29.85% industry average.
During the fiscal year that ended December 31, 2022, VLD’s revenue came in at $80.76 million. Its non-GAAP net loss increased 60.1% year-over-year to $83.03 million. Also, its non-GAAP net loss per share came in at $0.41.
VLD’s revenue is expected to come in at $26.33 million for the fiscal first quarter that ended March 2023. Its EPS is expected to come in at negative $0.09 for the same quarter.
The stock has plunged 41.2% over the past six months to close the last trading session at $2.20. The stock has a 24-month beta of 2.25.
It’s no surprise that VLD has an overall rating of D, which translates to a Sell in our POWR Ratings system.
VLD also has an F grade for Stability and a D in Quality and Value. It is ranked #4 in the same industry.
Click here to see the POWR Ratings of VLD (Growth, Sentiment, and Momentum).
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DDD shares were unchanged in premarket trading Friday. Year-to-date, DDD has gained 19.86%, versus a 8.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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