Stratasys (SSYS)

3D printing company Stratasys (NASDAQ:SSYS) reported Q1 CY2025 results exceeding the market’s revenue expectations, but sales fell by 5.6% year on year to $136 million. The company’s full-year revenue guidance of $577.5 million at the midpoint came in 1.1% above analysts’ estimates. Its non-GAAP profit of $0.04 per share was $0.03 above analysts’ consensus estimates.

Company Overview

Born from the Founder’s idea of making a toy frog with a glue gun, Stratasys (NASDAQ:SSYS) offers 3D printers and related materials, software, and services to many industries.

Onshoring and inventory management–themes that grew in focus after COVID wreaked havoc on global supply chains–are tailwinds for companies that combine economies of scale with reliable service. Many in the space have adopted 3D printing to efficiently address the need for bespoke parts and components, but all companies are still at the whim of economic cycles. For example, consumer spending and interest rates can greatly impact the industrial production that drives demand for these companies’ offerings.

Competitors offering similar products include 3D Systems (NYSE:DDD), Desktop Metal (NYSE:DM), Proto Labs (NYSE:PRLB).

Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Stratasys’s demand was weak over the last five years as its sales fell at a 1.7% annual rate. This wasn’t a great result and suggests it’s a low quality business.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Stratasys’s recent performance shows its demand remained suppressed as its revenue has declined by 5.9% annually over the last two years.

This quarter, Stratasys’s revenue fell by 5.6% year on year to $136 million but beat Wall Street’s estimates by 1.1%.

Looking ahead, sell-side analysts expect revenue to grow 2% over the next 12 months. Although this projection indicates its newer products and services will catalyze better top-line performance, it is still below the sector average.

Stratasys has best-in-class unit economics for an industrials company, enabling it to invest in areas such as research and development. Its margin also signals it sells differentiated products, not commodities. As you can see below, it averaged an elite 44.7% gross margin over the last five years. Said differently, roughly $44.70 was left to spend on selling, marketing, R&D, and general administrative overhead for every $100 in revenue.

Stratasys’s gross profit margin came in at 44.3% this quarter, in line with the same quarter last year. Zooming out, Stratasys’s full-year margin has been trending up over the past 12 months, increasing by 3.9 percentage points. If this move continues, it could suggest better unit economics due to some combination of stable to improving pricing power and input costs (such as raw materials).

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Stratasys’s high expenses have contributed to an average operating margin of negative 25.4% over the last five years. Unprofitable industrials companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.

On the plus side, Stratasys’s operating margin rose by 74 percentage points over the last five years. Still, it will take much more for the company to reach long-term profitability.

In Q1, Stratasys generated a negative 9.1% operating margin. The company's consistent lack of profits raise a flag.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for Stratasys, its EPS declined by 13.6% annually over the last five years, more than its revenue. However, its operating margin actually expanded during this time, telling us that non-fundamental factors such as interest expenses and taxes affected its ultimate earnings.

We can take a deeper look into Stratasys’s earnings to better understand the drivers of its performance. A five-year view shows Stratasys has diluted its shareholders, growing its share count by 31.9%. This dilution overshadowed its increased operating efficiency and has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Stratasys, its two-year annual EPS declines of 9.9% show it’s still underperforming. These results were bad no matter how you slice the data.

In Q1, Stratasys reported EPS at $0.04, up from negative $0.02 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Stratasys to perform poorly. Analysts forecast its full-year EPS of $0.13 will hit $0.32.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Stratasys’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 5.6%, meaning it lit $5.62 of cash on fire for every $100 in revenue.

Taking a step back, we can see that Stratasys failed to improve its margin during that time. Its unexciting margin and trend likely have shareholders hoping for a change.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Stratasys’s five-year average ROIC was negative 25.6%, meaning management lost money while trying to expand the business. Its returns were among the worst in the industrials sector.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Stratasys’s ROIC has increased. This is a good sign, but we recognize its lack of profitable growth during the COVID era was the primary reason for the change.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

Stratasys is a well-capitalized company with $150.1 million of cash and $31.28 million of debt on its balance sheet. This $118.8 million net cash position is 14.6% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly Stratasys blew past analysts’ EPS expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 5.2% to $10.23 immediately following the results.

Updated: May 18, 2025 at 11:36 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Stratasys.

We cheer for all companies making their customers lives easier, but in the case of Stratasys, we’ll be cheering from the sidelines. For starters, its revenue has declined over the last five years. And while its expanding operating margin shows the business has become more efficient, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, its declining EPS over the last five years makes it a less attractive asset to the public markets.

Stratasys’s P/E ratio based on the next 12 months is 35.4x. This multiple tells us a lot of good news is priced in - you can find better investment opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $15.33 on the company (compared to the current share price of $10.90).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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