3D Systems (DDD) is one of the hottest stocks on Wall Street with 40% gains year-to-date vs. 15% for the S&P 500, and DDD stock has shot up more than 400% since 2012 while the S&P is up just 22%.
As the name implies, DDD is a 3D printing stock focused on the up-and-coming industry that involves high-tech manufacturing and on-demand production of custom parts. But with just a $5 billion market capitalization, DDD stock is a prime target for a buyout by a bigger competitor to take its operations to the next level.
And one suitor that DDD stock investors might be seeing more attention from is embattled tech giant Hewlett-Packard (HPQ).
Why would HP buy out DDD stock — or competitor Stratasys (SSYS) or any other 3D printing stock, for that matter?
Well, here are a few reasons:
- HP is in Trouble: Hewlett-Packard is in deep trouble as the stock imploded after earnings last week. HPQ stock dropped more than 10% on news that it might not grow sales at all in 2014, and that management was being shaken up again as the beginning stages of a five-year turnaround plan continue to fall short.
- HP needs a change: Many businesses that rely on laptop and desktop sales have been upended by the move to mobile, including Intel (INTC), Microsoft (MSFT) and Dell (DELL). And all are looking to do something fresh and different — either in the mobile space or in something completely different. Why not 3D printing via a DDD buyout?
- HP has the cash for a DDD buyout: HPQ boasts $13.2 billion in cash and short-term investments. It can easily gobble up 3D Systems, even after paying a premium on current DDD stock valuations.
- DDD has regular printing power, too: While investors love the 3D printing segment, DDD also has a host of software and staff that could help HP and its conventional printing and imaging segment. HP remains tied to its imaging business, which includes high-quality industrial printing as well as just those ubiquitous inkjets, and DDD know-how could perhaps refresh the brand or at least provide economies of scale within Hewlett-Packard.
Crazier things have happened — and considering the debacles at HP including the Autonomy buyout and the Palm acquisition, it’s not like an ill-advised deal for DDD would be a complete surprise.
But HP better act fast. A Citigroup analyst just initiated coverage on DDD stock with a “buy” rating, so the longer it waits the more expensive 3D systems could become.
- Hewlett-Packard stock is a sell after earnings. (The Slant)
- Kenneth Wong initiates coverage on DDD and SSYS with a “buy” rating. (MarketWatch)
- Alyssa Oursler on why DDD is set to explode. (InvestorPlace.com)
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.