I published an article on January 13, 2020 about Mampilly’s “America 2.0” pitch and his “#1 Stock for 2020”, and though that ad is largely unchanged we’re seeing it a lot again now — most recently, the ads from Banyan Hill now say that this is “My No. 1 Stock for 2021,” and present this rerun “interview” as if it’s new and exciting.
So yes, this is now pitched as the number one stock of next year, but the actual ad itself still carries a January 2020 date and is essentially unchanged. Let’s look it over again and see if we can find any changes, and I’ll update my thinking on the stock being teased.
Here’s a Mampilly quote from the email intro to the ad, which I received several times in recent weeks:
“… it’s not just the Dow that could climb to 100,000. Real estate will double. That’s why I call this new era America 2.0. And this company is at the forefront of it all. The stock is a steal at $10.”
The “America 2.0” part of the pitch can only be described as “big patriotic optimism” — he thinks we’re at the point of beginning a new huge wave higher for the US economy as demographics, capital availability, and the “economic velocity” in the economy converge to generate big growth.
No mention is made of the coronavirus, since the interview actually took place well before anyone had heard of that virus and certainly before it brought a crushingly fast recession to our shores… which in retrospect as an investor is just fine, since the Dow has now recovered its coronavirus collapse, but he apparently still thinks this next wave of innovation will bring the Dow Jones Industrial Average to 50,000 and eventually 100,000, and will help real estate double “in the months to come.” The Dow Jones Industrial Average right now is just trying to break through 30,000, it’s within about 5% of where it was when this “interview” with Mampilly first ran in January of this year.
He may end up being right, I have no idea [ed. note: so far, he hasn’t been — unless “months to come” means “more than 11 months”], but what piqued my interest was his pitch about a special report that he’ll be providing to new subscribers:
“It reveals my No. 1-rated stock. It’s a little-known company that isn’t just positioned to profit from America 2.0 … it will be essential to building America 2.0.”
So that’s what we’re looking for today… what clues does he drop for us in his “special presentation?”
“… tell us more about this company, and why you think it will soar 1,000%.
“Paul: Sure. It’s a relatively small company based in South Carolina … valued at just $1 billion… But, it’s disrupting a $2.2 trillion industry… manufacturing.
“Manufacturing is the backbone of any economy, really. America is no different.
“Here’s the thing … since Henry Ford introduced the assembly line to the auto industry a hundred years ago … manufacturing has really remained the same. Sure, we’ve had robotics and computers make advancements … but there hasn’t been a disruption.”
I don’t know if I agree that the past 100 years have seen “no disruption” in manufacturing… but we’ll leave him to that opinion. What is this company doing?
“This company is disrupting the auto industry … making better cars, faster. Housing is becoming cheaper. Even the health care industry is seeing massive advancements.
“It already employs 2,000 hardworking Americans who are churning out almost $700 million in annual sales.
“And the stock is about to take off.
“Right now, it’s trading right around $10.
“But I think it could soar to $50 … and then potentially even $100…. within the next few years…. As little as three years.”
And a few other hints:
“BlackRock just bought 514,000 shares of this company.
“Vident just added 404,000 shares.Are you getting our free Daily Update
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“And Invesco Advisers just bought 8,000,000 shares.”
So who is this, dear friends? Well, the ad hasn’t changed — they didn’t even bother to update those institutional shareholder numbers from a year ago — so Thinkolator sez it is still 3D Systems (DDD), a stock that, along with its major competitor Stratasys (SSYS) went through a massive hype cycle about 7 years ago, when there was investor exuberance about 3D printing taking over the world (and when pretty much every newsletter publisher was teasing one 3D printing stock or another).
Things have been very, very quiet since that hype cycle fizzled out — 3D printing has continued to improve, of course, and has gotten dramatically cheaper (particularly at the low end, where you can now confidently give a clumsy 13-year-old a $100 3D printer that works better than the super-sexy machines of a decade ago), but the enthusiasm has remained dormant for the past four or five years, with both of those companies reporting essentially flat sales. Here’s what those two industry leaders look like in graphic form — this is a chart of their stock price and their revenue for the past decade (3D Systems stock in blue, revenue per share in orange… Stratasys stock in red, revenue per share in green):
(And yes, the numbers would look a little better on the revenue front if I charted just sales instead of revenue per share, but that would be misleading — both of these companies did large acquisitions to consolidate the industry at roughly the same time, during the surge from 2010-2015, and that lifted their revenue significantly… and both used stock to make those acquisitions and saw their share count rise dramatically — SSYS much more than DDD).
I haven’t paid a lot of attention to these stocks since they collapsed in 2014 when the promise of “we’re going to 3D print everything and revenue growth will surge!” turned into “um, the slow acquisition-fueled growth we’ve had for 20 years is continuing, actually, and we’re just puttering along… sorry!”
So what’s the story now? Well, the stock did surge the first time this pitch circled the globe, in early January of 2020 — and I would wager that’s largely because of Paul Mampilly and this “#1 Stock for 2020” ad pitch, since his newsletter is low-cost and extremely well-marketed (this is an ad for Profits Unlimited, his $47 letter that’s used as a feeder for his high-end services).
The stock has been so volatile, and failed to really get any traction over the past few years, because no “narrative” has formed about the success (or failure) of their attempt to grow. And this year, of course, their revenues are dropping meaningfully because of the pandemic and its impact on companies around the world. There have been glimmers of hope, like an approval for one of their surgical products, and a big order from Volkswagen, and their last quarterly report was solid and provided some hope of real recovery from the pandemic collapse, but that all depends on us “resetting” the story to lower the bar. They don’t seem likely to revisit their peak revenues of 2018, or peak cash flow of 2017, anytime soon… unless, of course, Mampilly is right about this being the company that is the real heartbeat of the US manufacturing revolution (no, I don’t know why he keeps referencing “real estate” as a driver, that’s obviously important for the economy but has very little connection with 3D printing).
I still wouldn’t bet on 3D Systems, personally — what will make DDD appealing to me again, if anything does, is revenue growth — the stock has been stuck at a plateau between $600-700 million in annual revenue for five years, falling below that this year because of the virus but likely to recover to that level within a few years, and there doesn’t seem to be much room for explosive growth in this industry.
And I don’t really buy the new “narrative” they were trying to drive early this year of increasing shareholder value by becoming more efficient — I think they’re too small for that to be enough to generate excitement. It could certainly help, of course, and on that front things at least look a little better than they did before the latest quarterly report, since improved guidance now has analysts indicating that they see a return to profitability in the fourth quarter (three cents a share of profit, so hold the fireworks, but that’s better than the loss predicted earlier).
Analysts are now forecasting that DDD can get to 23 cents per share in earnings in 2021 without real revenue growth (by boosting EBITDA margins from 2019’s 5% to 12%), then at $9 the stock is trading at about 40X what will soon be next year’s earnings.
That’s not the current expectation anymore, though, that was back in the world of January — here in March, analysts have downgraded their expectations and they now see about 13 cents as the likely earnings per share number for 2021, with 8% EBITDA margins. The stock is now in the $6.50 neighborhood, so the simple forward valuation has actually gotten less appealing despite the share price drop, DDD is now trading at 40X forward earnings. When Mampilly first pitched this idea, almost a year ago, it was 26 cents in earnings expected in 2021 and an $11 stock, so back then we were closer to 50X forward earnings… neither seems particularly attractive to me, though if they can continue to grow earnings beyond that, even with only tepid revenue growth (3% growth is expected in 2022 sales, leading to 30% earnings growth), then perhaps you can justify this as an earnings growth story.
Call me a fuddy-duddy, but I don’t think you should trade at 40-50X forward earnings because of a one-time recovery in margins as part of a long-running “turnaround” story, even if those analysts are right. You shouldn’t get a lofty valuation like that without either a rock-solid guarantee (like some utilities and strong dividend payers), unless you have revenue growth showing a clear sign that the business is growing and will continue growing… and currently, that average analyst forecast is that DDD, which had sales of $688 million in 2018 and $629 million in 2019, will fall from the original forecast of $660 million in 2020 to about $520 million, a level that will hold for 2021 before that 3% revenue growth kicks in. To me, that’s not enough… not for a company that’s been around for decades, and has built a niche business, but has been unable to break through with the high-volume, high-margin sales that have persistently been predicted to be just a year or two away. Maybe the expectations have reset enough to make it worthwhile here, if you’re more optimistic about their potential than I am, but I’d have to do a much deeper dive into the company to get comfortable with them at what is still a premium valuation.
So that’s my skeptical thinking based just on the financials and the forecasts I’ve seen, and my skepticism hasn’t really changed since I first covered this in January. Feel free to use it to balance Mampilly’s optimism that this will be a leader of the manufacturing revolution and could return 1000% in three years — but, of course, make sure to do your own research and make your own call. This is not about the business, which has been evolving for almost 40 years since DDD’s founder (arguably) invented 3D printing in the early 1980s, it’s about what investors will think about the business in 2020 and 2021, and I have not studied DDD’s pipeline of products for 2020 or its current strategic plan, and claim no expertise on what investors will think in the year to come. DDD has had exactly one period of very strong revenue growth in 30+ years as a public company, and that came from 2010-2015, was largely driven by acquisitions, and caused the one real spike the shares have had.
Frankly, I’m still inclined to think that 3D printing, which encompasses lots of different technologies, is a key technology and an important tool… but also that it is a niche product, not a mass market one, and the sector at both the high and low ends is more competitive than you might think. The 3D printing companies have usually traded not on fundamentals, which have been fairly uniformly weak for SSYS and DDD over the past five years, but on future hopes (new breakthroughs in metal printing, new medical and dental devices). Future hopes change a lot faster than numbers do, so the stocks will probably continue to be quite volatile.
The hope for the future is that 3D printing can eventually become as lucrative as 2D printing — which means that a lot of daydreams of success for DDD or SSYS are based on the idea that a move from using 3D printing to “prototype” products to using 3D printing to actually produce end products will create a vastly larger potential market… and, as importantly, create a larger market for materials and feedstock — which, as with ink for printers, are likely to continue to be high-margin profit centers for all the 3D printer companies.
So I’d say we’re still too expensive, I’d still start to consider DDD as a “bottoming out” bargain if it got down to $2-3, and it might never get there… but that’s OK, because I’d only really be interested in a non-growth stock like this if it gets shockingly cheap. Perhaps your opinion will be different, and I’ll leave it to you to make your call — so are you “yeah” or “nay” on DDD? Prefer SSYS or one of the others? Think we’ll have another 3D printing bubble, or that 2020 will mark the bottoming out and beginning of a real recovery in the shares after a long period of weakness? Or is this just another head-fake from businesses that have never done as well as storytellers imagined they could? Let us know what you think with a comment below.
P.S. What’s the lesson in this “No. 1 stock for 2020” also being the “No. 1 stock for 2021?” It’s that the sexy new idea that’s hitting your inbox, and maybe grabbing your attention, is not terribly likely to be the very best investment idea of the moment, or even the best idea that pundit has at that moment (assuming any of us pundits and writers ever know which of our ideas will do best over the next year… which, of course, we don’t)… it’s quite possible that it’s just the marketing pitch that they’ve found which works best, and they’re continuing to hammer it home to as many viewers and readers as possible… and a few tweaks to the copy can make an idea that they first honed with their copywriters and marketers a year or two ago seem like it really is a “recent interview” or a new idea.
Paul Mampilly and Banyan Hill are not the only ones who do this, of course — the insatiable push to recruit new subscribers drives every publisher, that’s their lifeblood, so the marketers test and try lots of ideas to see what will work, and come out with new ideas all the time, but when they find a marketing pitch that really works they’ll re-use it over and over. I recall seeing ads from Banyan Hill, the Oxford Club and Motley Fool, to name a few, that ran off and on for three or four years, never acknowledging that the special report or investment being teased was anything but urgent and brand new.
The email you’re being sent is the one they think will work best to get you to walk in the front door with your credit card in hand, not the one that they think will do you the most good as an investor. Remember that, and you’ll be on your way to thinking a little more clearly for yourself and not falling too hard for what seem like “hot new tips.” 3D Systems might end up being a fine investment over the next few years, despite my skepticism, and you should try to make your own decision on that based on your own research… but this teased recommendation of the stock is not a brand new flash of brilliance as the “#1 stock for 2021” (and, of course, I’m sure it’s not the only “#1 stock for 2021” that we’ll see teased in the months to come).