Stratasys Stock Tumbles On Unexpected Results
Stratasys released their 2018 financial results and there was a little bit of a surprise.
In the report there were several very good items that have improved on past years’ performances. For example, their GAAP operating loss was “only” US$11M as compared to their loss of US$14M for 2017. That's a significant improvement, but it is still a loss.
In the fourth quarter they managed to increase their gross margin somewhat, which is always a good thing. However, the total revenue for 2018 was actually about US$5M less than they received in 2017.
So, a mix of good and bad. That's not terribly different than most of their financial reports over the past few years.
But, if you look at the chart above, you'll notice their stock price took this significant tumble upon the release of this information. Why could that be?
It seems that Stratasys missed their financial targets. Publicly traded companies are required to provide some financial guidance to investors prior to the results being released. It's a kind of forecast that helps investors understand where the company is headed.
In fact, this financial report includes guidance for 2019, or in other words, what they expect to happen in 2019.
The stock price of a company is typically strongly influenced by these forecasts. Investors, who trade stocks of many companies frequently, would be paying close attention to these forecasts and computing the likely value of the stock in the future. This then allows them to peg the current price of the stock at a value that is sensible in terms of the expected performance.
But what happens when the actual results don't match the forecast?
You get what you see above. That's called an “adjustment” where the generally accepted price of a stock is reset to a value that's consistent with the best known information about the company, which, in this case, happens to be the actual financial results from 2018.
Thus it’s of great importance for a company to, first, provide forecasts that are accurate and consistent with the true happenings behind the scenes at the company. Secondly, it's also critical for the company to actually meet that forecast.
Usually when the forecast is not met something unexpected happened. In this case it could be that the lower amount of revenue for the year suggests they didn't make as many sales as expected. This could be due to the dramatically increasing amount of high-level competition in the space that Stratasys is occupying.
As we've said before, this is by no means a catastrophic situation for Stratasys. They still are one of the largest 3D printer companies in the world, and the relatively miniscule loss is easily paid for from their massive pile of cash in the bank. They could go on like this for many years without burning down their stash.
However, the competition in the space, although high now, will continue to grow and become even more bothersome for Stratasys in the future. To counteract this they'll have to develop some revolutionary new products that attract more new customers.