Stratasys’s stock price has taken a beating over the past six months, shedding 29% of its value and falling to $8.03 per share. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy Stratasys, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Do We Think Stratasys Will Underperform?
Even though the stock has become cheaper, we don't have much confidence in Stratasys. Here are three reasons why SSYS doesn't excite us and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Stratasys grew its sales at a weak 1.1% compounded annual growth rate. This fell short of our benchmarks.
2. Operating Losses Sound the Alarms
Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Stratasys’s operating margin has been trending up over the last 12 months, but it still averaged negative 12.7% over the last five years. This is due to its large expense base and inefficient cost structure.
3. Cash Burn Ignites Concerns
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Stratasys’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 5.4%, meaning it lit $5.41 of cash on fire for every $100 in revenue.
Final Judgment
We see the value of companies helping their customers, but in the case of Stratasys, we’re out. After the recent drawdown, the stock trades at 70.3× forward P/E (or $8.03 per share). This valuation tells us a lot of optimism is priced in - we think other companies feature superior fundamentals at the moment. Let us point you toward a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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