Buy 3D Systems Stock After a 15% Price Surge? 3 Things You Need to Know

Down 47% in 52 weeks, 3D Systems Corporation has had a rough past year. And yet, in early Thursday trading, 3D Systems stock surged 15%, despite releasing no news of note. So what's the story behind this amazing turnaround in one of the two hottest 3D printing stocks?

The news Basically, investors have just one person (or rather, bank) to thank for 3D Systems stock's surge today: Bank of America/Merrill Lynch. Early Thursday morning, analysts at Merrill Lynch did a complete 180in their thinking about the stock, spinning from an underperform rating to end with a clear endorsement that the stock is now a buy.

Here are three reasons why.

3-Dimensional printers from 3D Systems... are a bit bigger than your average printer. Image source: 3D Systems.

Thing No. 1: Things have been badMerrill Lynch began its note by admitting the obvious. As put it, in recounting the analyst's recommendation: 3D Systems has endured "two years of underperformance." (Actually, a bit more than two years. At the end of 2013, 3D shares were selling for north of $96. Today they cost $18 and change).

Thing No. 2: But things are getting betterThat said, Merrill Lynch has high hopes for new 3D CEO Vyomesh Joshi, a former executive at Hewlett-Packard. According to Merrill, Joshi has laid out a plan to "align the cost structure with revenue growth to drive improving profitability." After a year that saw operating costs surge 32% versus just a 2% climb in revenue in 2015 (according to data from S&P Global Market Intelligence), that realignment will be critical to getting profits growing again -- or indeed, earning any profits whatsoever (which last year, 3D didn't do).

Thing No. 3: Albeit maybe not right awayAt the same time as Merrill Lynch makes happy noises about the company's long-term prospects, however, Merrill may have jumped the gun in recommending 3D Systems today. In a bow to 3D skeptics, the analyst admits that "secular demand for 3D printers is weak," and this is a point that hasn't been lost on other analysts, either.

In fact, at the same time as Merrill was pulling its 180 on 3D this morning, analysts at rival investing house Piper Jaffraywere warning that 3D printing demand in Q1 was weak. Citing the results of a recent 3D printing survey, Piper observed that "significantly" more 3D printing resellers told it that sales came in below expectations in Q1, than said their expectations were exceeded. The month of January in particular is described as having been "extremely challenging."

Piper's data actually seems to suggest that Q1 will look better for 3D Systems rival Stratasys than for Merrill Lynch's favored stock.One final thingAnd yet, for small investors wondering which way to jump, I have to say that the view looks pretty bleak for both these stocks. While both Merrill Lynch and Piper Jaffray entertain long-term hopes for a revival at 3D Systems and Stratasys, respectively, both analysts tend to agree that Q1 results could look quite ugly.

Meanwhile, from a fundamental perspective, there seems to be little to recommend either stock based on recent trends. In 2015, both 3D and Stratasys reported negative GAAP earnings, and both burned cash. 3D Systems reported $25 million in negative free cash flow; Stratasys burned $105 million.

Unless we see a significant uptick in forecasts from both these stocks when earnings come out next month, 3D Systems shareholders could have more to lose after this morning's 15% price spike. Stratasys shareholders, up 9% in sympathy to the 3D upgrade, can expect losses as well.

3D Systems is scheduled to report earnings May 4. Stratasys will report five days later, on May 9.

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Fool contributorRich Smithdoes not own shares of, nor is he short, any company named above. You can find him onMotley Fool CAPS, publicly pontificating under the handleTMFDitty, where he's currently ranked No. 290 out of more than 75,000 rated members.The Motley Fool recommends 3D Systems and Stratasys. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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