Analyst Warns Stratasys Stock Moving At Odds With Fundamentals

Shares of Stratasys, Ltd. (NASDAQ: SSYS) lost more than 8 percent Monday morning after analysts at Goldman Sachs turned bearish on the stock.

Goldman Sachs' Matthew Cabral downgraded the 3D printing company from Neutral to Sell with an unchanged $20 price target, which implies a downside of nearly 30 percent. While the analyst did acknowledge the company's business is indeed showing signs of stabilization after two years of declines, the fact remains it still faces multiple headwinds.

Competitive Concerns

Stratasys is facing competitive threats not only from "deep-pocketed" industrial giants but also innovative startups, Cabral noted. Of particular note, General Electric Company (NYSE: GE) has spent more than $1 billion to acquire multiple 3D printing companies and is targeting a $1 billion revenue run rate by 2020. Some of the start-ups that will challenge Stratasys includes Carbon, XJet and Markforged continue to "drive technical innovation."

Meanwhile, Stratasys' competitive positioning isn't as impressive as others since it lacks exposure to the higher-growth technologies segment and has no direct metal offerings, the analyst added. This naturally places an additional risk to the company's longer-term positioning within the entire industry (check out Cabral's track record).

Margin Risks

Pricing within the 3D printing industry needs to be "meaningfully lower" than where it is today to drive adoption, Cabral added. In fact, pricing remains the most important factor which is holding back 3D printing adoption and any price cuts in Stratasys' products to gain market share will weigh on its gross margins profile.

Bottom Line

After a near 70-percent gain since the start of 2017, Stratasys' stock may have run up too fast given the multiple headwinds and gross margin risks.

At last check, shares of Stratasys were down 12.15 percent at $24.27.

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