3D Systems Corporation (DDD): Is Stratasys, Ltd. (SSYS) Destined for Greatness?

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Stratasys, Ltd. (NASDAQ:SSYS) fit the bill? Let’s look at what its recent results tell us about its potential for future gains.

What we’re looking for
The graphs you’re about to see tell Stratasys, Ltd. (NASDAQ:SSYS)’ story, and we’ll be grading the quality of that story in several ways:

Growth: Are profits, margins, and free cash flow all increasing?

Valuation: Is share price growing in line with earnings per share?

Opportunities: Is return on equity increasing while debt to equity declines?

Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let’s take a look at Stratasys, Ltd. (NASDAQ:SSYS)’ key statistics:

SSYS Total Return Price data by YCharts

Passing Criteria	3-Year* Change	Grade
Revenue growth > 30%	172.3%	Pass
Improving profit margin	(728%)	Fail
Free cash flow growth > Net income growth	(165.9%) vs. (364.3%)	Pass
Improving EPS	(183.6%)	Fail
Stock growth (+ 15%) < EPS growth	210.7% vs. (183.6%)	Fail

Source: YCharts and Morningstar.
*Period begins at end of Q1 2010.

SSYS Return on Equity data by YCharts

Passing Criteria	3-Year* Change	Grade
Improving return on equity	(145.1%)	Fail
Declining debt to equity	No debt	Pass

Source: YCharts.
*Period begins at end of Q1 2010.

How we got here and where we’re going
This isn’t a particularly good showing for such a popular stock, and a big reason for that is the big decline in net income seen over the last few quarters. However, free cash flow hasn’t been doing well, either. Stratasys, Ltd. (NASDAQ:SSYS) began the tracking period with positive free cash flow, but has since sunk into the red there. There’s a great deal of optimism surrounding 3-D printing, but the actual results don’t always match up to the hype. Stratasys also significantly underperforms its sector peer 3D Systems Corporation (NYSE:DDD), which earned five out of seven passing grades on this analysis late last year. But is this just a temporary blip, or indicative of long-term earnings weakness?