Woe Unto Shorts: 3-D Printing and the Perils of Revolution (DDD; SSYS; XONE)

From Barron's Tech Trader:

Shares are soaring for 3-D printing companies such as 3D Systems, ExOne, and Voxeljet, but a hiccup in quarterly results will lead to a correction.

Woe be unto the short seller in this time of heady stock appreciation. In February, when the astute folks at Citron Research issued a negative report on 3D Systems (ticker: DDD), the makers of three-dimensional printing machines, the stock had a $3.6 billion market capitalization.
Last week, it boasted a market cap of nearly $8 billion.

And so a worthy debunking has been a simply awful short sale. That is not atypical of late. Hedge-fund manager Whitney Tilson last week remarked, "I have never seen such carnage for short sellers" as this year.
He should know. Tilson, who manages $70 million, has lost some money shorting 3D Systems stock at about $50, as it soared above $80, part of a $1.5 million short position that includes shares of two other 3-D names, ExOne (XONE) and Voxeljet (VJET). Both of their stocks are up sharply after undergoing initial public offerings this year.

Tilson's shorting of Hewlett-Packard (HPQ) can't be much fun, either, with its stock up 94% this year. The global rush of money into equities has blown past pertinent objections of Citron and others, though 3D Systems shares did slump last week after Tilson discussed his misgivings at a forum hosted by the Harvard Business School.

In the case of 3-D printing, Tilson and Citron are running against an exuberance for the next big thing whose ebb is always hard to time.

FOR ALL THE FROTH, THE 3-D industry is real, it is growing, and it is here to stay. That makes fighting the stock price of such a company perilous in a generally buoyant market.

The short thesis is that printing of 3-D objects has been around for decades, and 3D Systems is just one of many participants and has contributed very little to the industry's actual advancement.

3-D printers assemble physical objects according to several methods broadly known as stereolithography and selective laser sintering. A sinter is a geological term for mineral deposits that form a crust as a result of great heat, as silica or calcium may in a hot spring.

The technology takes powder or liquified plastics—though a variety of materials can work, including metals, glass, and rubber—which are sintered by heating with a laser to build up successive strata that form solid objects. That's what it means to "print matter," also know as additive manufacturing.

3D SYSTEMS AND ITS ILK sell machines that maneuver this powder as the laser heats it, extruding the molten substance through a nozzle in repetitive fashion, and forming the object by laying down successive layers. The dustlike powder, or filaments in some cases, are the "consumables," the high-margin sale in 3-D printing akin to toner and ink in more conventional printing.

Citron's report makes light of the fact that these printers, the simplest of which can be bought at Staples for as low as $1,300, are an expensive way to make plastic trinkets, a hobbyist market that some take for a fad....MORE