Why The Stratasys Downgrade A Day Before Earnings?

Stratasys, Ltd. SSYS traders went on quite a ride Monday morning as the stock whipsawed on news of a downgrade to Underperform by William Blair ahead of the company’s Q1 earnings report expected to come before the market open on Tuesday. According to William Blair analyst Brian Drab, Stratasys shares have come too far too fast so far in 2017, and the stock is due for a correction.

5 Factors For Market Moves

Drab said Stratasys’ incredible 80.5 percent year-to-date gain has been driven by five factors:

1. A Wohlers report in April forecasting 20 percent annual growth in the additive manufacturing market.
2. A Piper Jaffray upgrade on April 18.
3. Statasys’ presentation of the “factory of the future” from the RAPID additive manufacturing exposition last week.
4. Stratasys’ new distribution partnership with Desktop Metal.
5. 3D Systems Corporation DDD’s first-quarter earnings report forecasting double-digit revenue growth in 2018.

Analyst Commentary

“In our view, shares are overvalued at $30, a price that represents a 100 times multiple on the consensus 2017 adjusted EPS estimate and 57 times multiple on the 2018 consensus estimate,” Drab explained.

Related Link: Stratasys Outperforming In Its Space, Piper Jaffray Finds Shares 'Attractive' At These Levels

He believes the market is pricing in a return to robust growth for Stratasys, but Drab said that outcome is unlikely.

Despite opening Monday’s session by dropping to as low as $28.55, Stratasys shares quickly rebounded to above $30. One possible explanation for the quick bounce is that short sellers took the dip as a final opportunity to close out their positions ahead of what promises to be a volatile session on Tuesday. According to shortsqueeze.com, Stratasys currently has a 10.2 short percent of float with 4.9 days to cover.