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Here's Why You Should Hold on to Stratasys (SSYS) Stock Now

Zacks Equity Research
Updated

A successful portfolio manager understands the importance of adding well-performing stocks at the right time. Indicators of a stock’s bullish run includes 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. There are a few concerns regarding the stock which are short lived but it has the potential to perform well in the long run.

The stock has outperformed the Zacks categorized Computer-Peripheral Equipment industry over the last six months. The stock yielded a return of 43.6% over the period, outperforming the industry’s gain of 28.3%.

Let’s look at the reasons behind Stratasys’ solid momentum.

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What’s Driving the Stock?

Stratasys has been scaling newer heights across all its business segments. Over the past few months, the company has inked strategic partnerships to fuel its growth momentum. The 3D printing company has made strategic partnerships with the likes of Schneider Electric, The Boeing Co. BA, Ford Motor Co.F and Siemens. Recently, Stratasys entered into a strategic partnership with SIA Engineering Company Limited.

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. These partnerships spell opportunities for Stratasys’ 3D systems business and will increase its installed base.

The 3D printing market presents a favorable long-term investment opportunity as a large number of engineers, designers, architects and entrepreneurs are resorting to 3D solutions for their primary designing and product modelling. 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 may exceed $21 billion by 2020 at a CAGR of 34%. As the industry leader in 3D printing, this is encouraging information for Stratasys as the company will be able to grab a large share of this market.

Estimate Revisions

Over the past 60 days, fiscal 2018 estimates were revised upward, taking the Zacks Consensus Estimate up from 19 cents per share to 24 cents. Stratasys also delivered positive earnings surprises in the last four quarters with an average beat of 99.4%.

Risks Remain

Nonetheless, some customers are delaying their purchases owing to current economic conditions. In the 3D printer business, 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 a potent headwind.

We note that Stratasys currently has a trailing 12 month Price/Book Value (P/B) ratio of 1.29. This level compares unfavorably with what the industry saw over the last year. The ratio is higher than the average level of 0.95. Hence, valuation looks slightly stretched from a P/B perspective.

Bottom Line

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 has much upside potential.

Keeping these positives in mind, we feel Stratasys is one such technology stock that deserves a place in investors’ portfolio. We can essentially filter the negatives and focus on the positives which drives price.

Stratasyscarries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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