3D Systems Corporation (NYSE:DDD) stock is trading down by around 5% today as the stock was burdened with a lower price target from Piper Jaffray analyst Tony D. Jensen. Jensen reiterated the ‘Underweight’ rating on the 3D Printer provider’s stock and slashed its price target to $16 from $18. Jensen also expects the company to miss The Street’s expectations marginally for the second quarter. The Piper Jaffray analyst also expects the company to face a difficult second half of the year due to challenges like execution issues, product quality concern, and overly aggressive consensus expectations. Overall, 3D Systems Corporation (NYSE:DDD) stock has dropped by more than 47% of its value so far in 2015. Given that Jensen does expect continued growth in the industry next year and feels expectations were simply too lofty too soon, is it a good time to buy the stock on its weakness? Let’s look to the activity of hedge funds to try and find an answer.
At the end of the first quarter, a total of 16 of the hedge funds tracked by Insider Monkey were bullish in this stock, with an aggregate capital investment of $144.9 million. However, there were 23 hedge funds with a combined $264.9 million investment in the stock at the end of the fourth quarter. 3D Systems Corporation (NYSE:DDD) stock dropped by around 14% during the January – March period, but hedge fund investment went down by a whopping 45% during the same time. This shows that hedge funds were pulling a lot of money out of this stock during the first quarter anticipating the headwinds to come for the sector. They were certainly right in doing so, as the stock has dropped another 40% since the end of the first quarter.
Most investors don’t understand hedge funds and indicators that are based on hedge fund and insider activity. They ignore hedge funds because of their recent poor performance in the long-running bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns enjoyed (or not) by investors. We uncovered through extensive research that hedge funds’ long positions in small-cap stocks actually greatly outperformed the market from 1999 to 2012, and built a system around this. The 15 most popular small-cap stocks among funds beat the S&P 500 Index by more than 80 percentage points since the end of August 2012 when this system went live, returning a cumulative 135% vs. less than 55% for the S&P 500 Index (read the details).
Likewise, other research (not our own) has shown insider purchases are also effective piggybacking methods for investors. That’s why we believe investors should pay attention to what hedge funds and insiders are buying and keep them apprised of this information. Insiders did not reflect the hedge fund sentiment, as there was an insider purchase of the stock during the first half of 2015 as CEO of 3D Systems Corporation (NYSE:DDD), Abraham Reichental bought around 10,000 shares of the company in May. There have been no reported insider sales.
With all of this in mind, Let’s take a look at the key hedge fund activity encompassing 3D Systems Corporation (NYSE:DDD).