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

Stratasys, Ltd. (NASDAQ:SSYS) bulls will point to its adjusted earnings, which came in 40% higher in the most recent quarter than the results of a year ago. There’s a great deal of divergence between the adjusted numbers and the official reports, and with analysts all tracking the former, it becomes easier to dismiss the latter as nothing more than a quirk of accounting rules. However, investors shouldn’t ignore Stratasys’ free cash flow, either — operating cash flow was barely positive last year, and free cash flow results have been shrinking for several years now. A growing company needs to spend on expansion purposes, this is true, but if this expansion turns out to be more optimistic than the market realities, then investors wind up buying into a stock that’s growing beyond its fundamentals.

Another risk to Stratasys, Ltd. (NASDAQ:SSYS)’ growth is a potential patent fight over some key 3-D printing processes. Many of the core 3-D printing technologies Stratasys and 3D Systems Corporation (NYSE:DDD) developed 20 years ago are, well, 20 years old now — patents on more specific technologies can help extend a grip on the market, but there’s little either company will ultimately be able to do to keep that grip in the face of competition. The only answer is to out-scale or out-innovate smaller players. Scale is easy so far, especially after Stratasys’ merger with Objet, but if the 3-D printing market will truly grow as fast as projected, it’s quite likely that we’ll see much larger industrial players before long.

Putting the pieces together
Today, Stratasys, Ltd. (NASDAQ:SSYS) has some of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy — or to stay away from a stock that’s going nowhere.

The article Is Stratasys’ Stock Destined for Greatness? originally appeared on Fool.com and is written by Alex Planes.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter, @TMFBiggles, for more insight into markets, history, and technology.The Motley Fool recommends and owns shares of 3D Systems and Stratasys and also has options on 3D Systems.

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