3D Systems Corporation's (NYSE:DDD) Shareholders Might Be Looking For Exit

When close to half the companies in the Machinery industry in the United States have price-to-sales ratios (or "P/S") below 1.6x, you may consider 3D Systems Corporation (NYSE:DDD) as a stock to potentially avoid with its 2.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for 3D Systems

What Does 3D Systems' Recent Performance Look Like?

While the industry has experienced revenue growth lately, 3D Systems' revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on 3D Systems.

Is There Enough Revenue Growth Forecasted For 3D Systems?

In order to justify its P/S ratio, 3D Systems would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered a frustrating 13% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 15% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 6.1% during the coming year according to the six analysts following the company. With the industry predicted to deliver 7.4% growth , the company is positioned for a comparable revenue result.

In light of this, it's curious that 3D Systems' P/S sits above the majority of other companies. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.

The Final Word

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Analysts are forecasting 3D Systems' revenues to only grow on par with the rest of the industry, which has lead to the high P/S ratio being unexpected. The fact that the revenue figures aren't setting the world alight has us doubtful that the company's elevated P/S can be sustainable for the long term. Unless the company can jump ahead of the rest of the industry in the short-term, it'll be a challenge to maintain the share price at current levels.

Before you settle on your opinion, we've discovered 2 warning signs for 3D Systems that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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