There’s no doubt that the 3D printing space has been beaten down feverishly over the last year. Stocks like 3D Systems (NYSE:DDD), Stratasys (NASDAQ: SSYS), voxeljet(NYSE:VJET) and others are well off their all-time highs. In fact, 3D Systems is trading at about 1/5th of its highs which were seen just over 17 months ago.
Short sellers have been piling into most of these stocks with short interest in 3D Systems at over 36.3 million shares as of April 15. The company has posted dismal earnings over the last couple of quarters, blaming it mostly on the macroeconomic environment, including the stronger US dollar, but at the same time they’re still experiencing decent growth.
With the stock trading at just over $22 per share, equating to a market cap of just over $2.5 billion, and M&A action within the US markets seemingly picking up (both Yelp and Salesforce have pretty much put themselves up for sale recently), one contributor at CNBC yesterday, seemed to like the idea of a possible 3D Systems takeover scenario. Additionally, options trading for shares of 3D Systems seems to point at such a possibility as well. Of course this would only be the case if information had been leaked and illegal insider trading had been taking place, but the signs are a bit too strong to completely blow off.
CNBC contributor Dan Nathan pointed out that options volume yesterday ran 1.5X higher than the typical daily average, with calls outnumbering puts 2:1. This meant that traders were purchasing future rights to buy the stock at a particular strike price (calls) twice as frequently as purchasing options to sell shares (puts) at a later date were being purchased for.
“I started looking at this name because of that Yelp news,” explained Dan Nathan. “I was looking for beaten down once loved manias, and DDD definitely fits that with high short interest. DDD has 35% short interest and the sentiment is bad.”
Yesterday there was one large buyer of 4,000 June 25-strike calls for $0.40. This equates to a bet that shares will be trading above $25.40 by the June expiration date. Although this is likely just an ordinary investor taking a chance that a beaten down stock will rebound, oftentimes when there are information leaks, and insider trading does take place, it occurs within the options market.
Even if 3D Systems is not ultimately bought out, even an inkling of a rumor, or M&A action within the industry in general, should be enough to spark a major run up of the share price, as short sellers have certainly squashed almost all of the confidence investors once had. With over 36 million shares shorted, we definitely have the ingredients for a rather violent short squeeze should any of the above take place.
“If you get the slightest bit of news of consolidation in the 3D space or maybe M&A chatter, you are going to have this stock up very quickly in a very short period of time,” Nathan went on to explain. “It’s like a coiled spring with all this short interest.”
As larger firms begin dabbling in the 3D printing space and eventually decide to enter, they will have to decide on whether it makes more sense to acquire an established entity or start from scratch. From a share price standpoint, this may in fact be close to the bottom. Will we see 3D Systems or another major 3D printing company become an acquisition target? That’s anyone’s guess, but they certainly are a more tempting target at $22/share than last year when their shares approached $100.
What are your thoughts? Is the industry ripe for M&A action? Discuss in the 3D Systems Takeover Talk forum thread on 3DPB.com.