A Valuation Approach for 3D Systems (DDD)

Previously, I’ve wrote a long article on 3D Systems (NYSE:DDD). There, I focused on analyzing the company organization and the product conception philosophy. In other words, I was interested in the growth potential of the company. However, in this text, I want to present a different perspective about 3D Systems. I want to present an analysis from a valuation perspective.

3D Systems has achieved profitable growth

Looking at 3DS historical operating performance:

Table1 – Gross and profit margins 2014 to 2009

We can see that the company has performed well in terms of gross margins from 2009 until 2013. Last year, the gross margin had a significant decline in line with the overall downturn in the company operations. In terms of profit margin, 3DS made a similar progress by significantly improving its profit margins from 2009 to 2013. In 2012, the company achieved its best profit margin for the analyzed period at 14.5%.

The margins performance is one of the reasons that make me like this company so much. Basically, the company has already shown the ability to achieve strong profitability even before achieving, let’s say, USD 1 billion in sales. At the same time, 3DS has been able to grow very fast, capitalizing on the growth spurt of the whole industry.

Underperforming the general market

3D Systems has proved its worth by achieving profitable growth. However, the fact that the industry is still small increases the likelihood of hiccups along the way:

Graph 1 – Stratasys (SSYS) vs. 3D Systems (DDD) vs. S&P 500 (SPY) from 2013 to present (

After a good performance in 2013, both Stratasys (SSYS) and 3D Systems started a prolonged disinflation process. Presently, both companies are underperforming the S&P 500 (SPY) by a wide margin as you can see in graph 1. This makes me believe that the downward movement in the stock price is related to the investment community perception about the whole industry rather than just a 3D Systems specific issue.

Valuation exercise

One interesting exercise would be to compare the profits for 3D Systems under different assumptions. In the following table, I have selected 2 main drivers: sales growth and profit margin.

Table 2 – 3D Estimations for profits in 3 years given different growth rates and profit margins

In the first row we have the margins, in the left column we have the revenue growth rate. Figures in thousands USD.

The previous table offers estimations for the next 3 years under different scenarios. In my opinion, the scenarios are the most probable given the present information. I am selecting a 10% to 40% annual growth rate interval and a 7% to 15% profit margin range. However, outcomes outside of this set of scenarios are possible and will lead to very different results from the ones I will present shortly.

Obviously, the different outcomes inside our table 2 will lead to very different earnings multiples. Based on my experience, I selected the following possible scenarios:

Table 3 – Estimations for the earnings multiples for 3D Systems

As an example, selecting a 10% margin and a 30% growth rate we would result in an earnings multiple around 35x. This would mean a market cap around USD 5 billion which compares with the current market cap around USD 2.4 billion. Assuming 120 million shares outstanding by then, the resulting stock price would be around USD 38.66. The next table summarizes the whole set of stock prices under the selected scenarios.

Table 4 – Estimations for stock price for 3D Systems in 3 years under the different scenarios


The presented scenarios offer a broad view about the possible upside/downside relation for this investment case. The important aspect here is to understand that 3DS stock price will be extremely sensitive to variations in sales growth and profit margins.


(Photo credit: 3D Systems)

I believe this is investment has a high upside/downside relation, which means that the pay-offs may be much higher than the capital at risk. However, there is a lot of uncertainty related to the company sector. Therefore, I believe this investment is suited for an aggressive investor that also uses well diversified portfolios. Only this way will it be possible to accommodate capital losses that may arise from this investment.

Of Interest: Best Buy and Varoufakis


From this week, I highlight two main events: Best Buy’s earnings release and the profiling on Yannis Varoufakis in the NYT. These two pieces make a very interesting read:

Best Buy presented results that topped analysts’ expectations. Earnings were pressured from restructuring charges. These one-off items are related to the disposal of several international stores, specifically in Canada. Overall, the results are in line with a positive execution of the turnaround.

Varoufakis is a key character in the negotiations with Greece. Of importance is the fact that the outcome of these negotiations will shape the future of the EU. The New York Times did an extensive profiling on Varoufakis. This a very interesting work piece that can help us to better understand the man behind Greek’s financial policy.

Have a nice weekend!

HERE Maps Might Be Hiding Nokia’s Future Path

When Nokia (NYSE:NOK) was still a mobile phone powerhouse, it bought a company called NAVTEQ. The transaction was made at around € 6 billion ($ 6,7 billion assuming the EUR/USD at 1.12), slightly less than the € 7.5 billion ($ 8.4 billion) that Nokia sold the once mighty mobile business to Microsoft (just to put some perspective on the whole matter).

(Photo credits: Titanas)

Although that could be considered as an obscene deal, it made sense when Nokia was still defending its leadership in the mobile industry. Location-based services were and still are expanding rapidly and are inseparable from the use of smartphones. However, paying € 6 billion ($ 6.7 billion) in 2007 for a company that currently is delivering sales around € 0.25 billion ($ 0.28 billion)with an operating margin between 9% to 12%, could be considered as pretty optimistic.

Now, we have the rumor about Facebook (NASDAQ:FB) Baidu (NASDAQ:BIDU) and Uber being interested in Nokia’s maps unit. I have seen a wide range of valuations attributed to this deal ranging from € 2 billion to € 7 billion. I think that the future of HERE might tell a lot about what is going to be Nokia’s future in the smartphone market.

If the company sells the maps unit for something around € 2 billion ($ 2.24 billion), in my opinion, this means that Nokia is not that serious about re-building a complete ecosystem around their rumored phones. The maps unit is a very good opportunity to build tailored smartphones with a higher degree of services differentiation. So if Nokia sells the unit at a € 4 billion ($ 4.48 billion) loss it must be because it is more worried about scavenging what’s left from the past than in leveraging its current assets for the future.

However, there is trade-off between securing the maps unit in order to fuel future services, and recouping the obscene amount of money used to buy it 8 years ago. In my opinion, if the offer allows the company to fully recover the invested money in the maps unit, I see a rationale for selling. In this case, the company could use the money to better prepare for a smartphone comeback, obviously without the differentiation provided by a state of the art maps unit. On the same note, it would be hard to justify that, after getting the opportunity to fully recover its money, Nokia chooses to keep an unit that has not evidenced stellar performance in 8 years. In conclusion, I see a € 2 billion deal as too low and a € 7 billion worth considering.

Bottom-line is: This rumor will play a very important role in identifying the Nokia’s management real intentions in relation to the future. In one hand, we have many people speculating about Nokia preparing a comeback. But on the other hand, Nokia’s management has been too blasé, always dismissing any kind of return. They have always stated that any hardware device will always be trough licensing to third parties (which is not the best way to keep a brands’ charisma and identity). Basically, now the execs will have to commit to something and this will give us a better insight to whether the company is going to become a low margin telecom equipment provider or will try to regain its status of a high tech corporation.

Earnings Digested: Santander Presented a Set of Good Results in 1Q15

Santander presented earnings 32% higher year over year.

There were two main contributors for this result:

  • Higher gross income:


  • Lower loan-loss provisions:


The results indicate that Santander is clearly on a normalization cycle. As I said before, the return on equity will be lower than during the pre-crisis period for the whole industry – this was a major structural shift.

In 1Q15, the ROTE for Santander was 11.5% while the bank is targeting a ROTE around 12-14% for 2017. To improve the ROTE, the bank is focusing on:

  1. Improving customer loyalty and engagement with the bank. A better franchise able to capitalize on the huge clients base will bring in higher profitability.
  2. Improvement in capital allocation that provide adequate returns and allow lower NPL’s. One example is the joint-venture with Pioneer for an Asset management unit.

This seems a good strategy, since the financial leverage from pre-2007 is no longer available, the improvement in performance has to come from the real business. Getting the best customer through better services is the answer to get a better yield from the banks’ asset base.

Bottom line: Good results for Santander, in line with the expected progress for the normalization of the bank’s results. In the following quarters, I believe this trend might continue.

Spreadsheets for my Valuation on Adidas

For 2018, I am considering the following baseline scenario for Adidas:

  1. Sales growth around 7% per year;
  2. Profit margin near 5%;
  3. Multiples between 25x and 20x earnings.

You can read my full thesis and valuation on the stock here

But the main reason why I am writing is the following: For the first time I am offering the base spreadsheets for an analyzed company. My goal is just to provide basic (but accurate) information for my readers to use in order to test my assumptions and to test their own. Therefore, I am offering my own compilation of data (but not the complete set of subsequent calculations that led to the several assumptions and final valuation). Obviously, I feel comfortable with the data (I took it directly from the 10-K with minor adjustments) but I do not guarantee the reliability of the data presented. For investment decision purposes, I advise you to look at the original data before making any decision. However, if you are starting your research, you can use my spreadsheets for an initial recognition of the company.

I want to help my readers to overcome a problem that I so often have: to have a source of financials with 5 or more years, that is reliable enough and ready to use to start drawing some ideas about the company. I used to get that from Reuters website (not the ready to use part), but I had some ill experiences with bad data that had material effect on the conclusions. I believe this can enrich the readers’ experience since one can just download the data and confront it with the whole article right away.

That said, this is an experiment, you should see as such. If the feedback is good (please feel free to provide your feedback in the commenting section), I’ll do it more often and I may even add more information like cash-flow statements and some ratios.

Adidas Spreadsheet: Includes Income Statement and Balance Sheet from 2009 to 2014, ROE decomposed and Return on Retained Earnings.

Nike Spreadsheet: Includes the Income Statement and Balance sheet.

Note: The links will be online for a limited time.

Tesla was almost sold to Google: Shouldn’t this be a warning about Tesla valuation?

Allegedly, Elon Musk approached Google (GOOG) in order to sell Tesla (TSLA) back in 2013. At the time, Tesla was having a hard time in materializing sales due to several problems in the car (Source: Bloomberg). The thing here is the fact that Tesla was in a situation so frail, back in 2013, that according to the Bloomberg it only had 2 weeks of cash in the bank.

The reason why I find this so amusing is the fact that Tesla is now valued at 25 Billion dollars while other companies in the sector selling millions of vehicles per year (and actually turning in a profit) do not come even close to a valuation like this. Obviously, this doesn’t mean that I doubt the company’s ability and skill to become relevant in the auto market. I just don’t think that the company deserves the sky-high valuations it presently has.

Tesla Visit 3

Photo: Oskay

It is my conviction that for investment purposes, we have companies like Peugeot (UG). Under the new management team headed by Carlos Tavares, Peugeot is starting to execute on the turnaround it started after the 2014 financial restructuring. And I believe that results obtained so far are worth checking out this stock. The new cars the company has been launching have won several prizes, while the financial results have swing to above the break-even line. On the operating front, Carlos Tavares has been pushing a lean philosophy within the company reducing costs and improving the product line.

Ok, Peugeot doesn’t owns Tesla’s glamour, but is that what matters for investment purposes?

Nokia is staging a comeback to the Smartphone arena: The rumors are getting stronger

A couple of weeks ago, I’ve wrote an article for TalkMarkets where I defended the idea that Nokia (NOK) could be pursuing a return to the smartphone arena. At the time I argued that Nokia should return to the smartphone industry through a large or a small acquisition. Now, we have Re/Code citing sources stating that Nokia is preparing a new smartphone made in-house.


(Source: Kārlis Dambrāns)

If the rumors materialize, this will be the first mobile device that Nokia will launch since selling the Mobile Phones unit to Microsoft (MSFT). Re/Code sources state that Nokia Technologies, the unit holding the mobile patents, is the responsible for the conception and design of the new device. This is the leanest approach to a comeback, doing in-house design and conception, leveraging the portfolio patents and outsourcing manufacturing and distribution. This way the risks are reduced, but the pace of innovation is also slower. All-in-all, this might be positive in the sense that it puts a foot in the door of the smartphone market and also gives time to the company to figure out where to focus its attention.

The timing of the acquisition of Alcatel-Lucent (ALU) is also interesting, since it will bring more patents to the company and liquidity. However, ALU’s balance sheet is not that rosy and the integration in Nokia will mean a deterioration of the debt ratios.

Bottom-line: Very interesting news, but the short term impact will be much reduced. All the attentions will be centered in the ALU’s integration in Nokia and this might be a long digestion since Alcatel has been showing very poor results for a long time.