DDD Stock: Shorting 3D Systems Can Still Reap 40% Profits

The earnings season has kicked off, and investors are likely staring down the barrel of a gun as things can get ugly in the coming weeks. Wall Street has made the worst ever start to a year, and while many investors are buying the dip, I think the market selloff will likely continue due to a weak earnings season.

In addition to the market-wide correction, investors are looking at the prospect of four straight quarters of earnings declines. Given the increasing strength of the U.S. dollar, I believe it another quarter of earnings decline is likely. The market sentiment is already bearish and another quarter of earnings decline can further fuel the stock market correction.

(Source: MarketWatch.com)

While picking a winning stock is difficult when the market is in correction mode, I firmly believe that investors can profit from it by shorting stocks that are prone to plunging after the earnings season. One stock that I think investors can short heading into earnings is 3D Systems (DDD).

Why 3D Systems is Short

As you can see from the image below, over the last two years, I have recommended investors to short/sell 3D Systems and my calls have been accurate every time. 3D Systems has been one of my best short calls as the stock is down from over $92 to under $6.7. Despite the massive correction, I think investors can still short the stock as it has more downside potential. Over the years, I have revised my price target for 3D Systems downwards many times, and I have been successful on every occasion.

(Source: TipRanks.com)

3D Systems is expected to share its Q4 earnings reports in the last week of February. Analysts are expecting 3D Systems to report earnings of $0.03 per share on revenues of $161 million. In Q4 FY2014, 3D Systems reported revenue of $187 million whereas its EPS came in at $0.21.

Both earnings and revenue are expected to fall considerably, however, given that the management failed to provide a guidance for the upcoming quarter, I am confident that 3D Systems will fail to meet the consensus targets…again.