Editor's Choice

A 3-D Printer Is Blasting Off to the International Space Station

BA is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

If you already think 3-D printing sounds like an out-of-this-world technology, you'll be literally right in October 2014. That's when spacecraft company SpaceX – with a 3-D printer in tow -- launches on a cargo mission to the International Space Station for NASA.

Earlier this year, Made in Space, a California-based private company, was awarded a Phase 3 Small Business Innovation Research contract with NASA's Marshall Flight Center to provide a 3-D printer for the 2014 mission. The project is the "3D Printing in Zero G Experiment," according to a Space.com article.

Why should investors care? Primarily, because the fact that NASA is hot for 3-D printing is a huge positive for the industry. Additionally, three public companies are partners with Made in Space: 3D Systems (NYSE: DDD)Stratasys (NASDAQ: SSYS), and Autodesk. And there's always the possibility of an IPO or buyout down the road...or up the stratosphere.

3D Printing in Zero G Experiment

The goal of this mission is to demonstrate the feasibility of using 3-D printing technology to produce spare parts and tools in zero gravity.

Made in Space will use its findings to develop a 3-D printing production lab -- the Additive Manufacturing Facility -- for NASA. The equipment for this facility is expected to be launched to the ISS in 2016. 

Use of 3-D printers at the ISS is just the start. The ultimate goals are to use this technology on space missions and when humans colonize other planets, such as Mars, which some – including SpaceX founder and Chairman Elon Musk -- believe will be within 20 years. 

This fact illustrates the potential for 3-D printing to make life in space easier and less costly: "More than 30% of the spare parts currently aboard the International Space Station can be manufactured by Made in Space's machine," the Space.com article quotes company co-founder Jason Dunn as saying. 

There's also the safety aspect. There's no way even a group of rocket scientists can determine every conceivable "what if" scenario. So, the ability to crank out a certain shaped widget to use as a jerry-rigged or permanent fix while in space could be mission- and life-saving. 

Made in Space

The company was founded in 2010 out of a NASA Ames Research Center program at Singularity University with the goal of bringing additive manufacturing, or "3-D printing," to the space industry.

The founding group is comprised of 3-D printing veterans (a Bespoke Innovations co-founder and an Autodesk director), space veterans (including an astronaut), and several entrepreneurs. (Bespoke was acquired by 3D Systems in 2012.)

The company has built and tested numerous 3-D printers in its lab. It's also tested the effects of microgravity on three 3-D printers via parabolic airplane flights, which produce short periods of weightlessness.

Autodesk's software is undoubtedly being used for design purposes, while 3-D Systems and Stratasys have likely provided printers for testing. The Autodesk partnership isn't surprising, as there's an Autodesk director in the founding group and the company is one of the sponsors of Singularity.

One small step for a 3-D printer, one giant leap for the 3-D printing industry

I've been more bullish on the industry since last June, as I said in  "The 3-D Printers: How Do the Players Stack Up?" I became more confident in the industry when 3D Systems received certification to use its systems in a broad range of healthcare products. I viewed that as a vote of confidence -- and we all know there's much money in healthcare. 

I feel the same way about NASA's goal of using 3-D printing in a variety of ways. (NASA has several forays into 3-D printing going. Another one involves using 3-D printers to produce meals during longer missions.) Not only is NASA (and the broader aerospace industry) a huge market, there's an added bonus: Tech innovations are often helped along by governmental agencies, such as NASA and DARPA.

Industry will skyrocket, but how do the major 3-D players stack up now?

The 3-D printer stocks were in jet-propulsion mode from my April piece through last week. Even after giving up 13%-17% of their gains in the past three trading days, two of the three are still up significantly in the past 1-1/2 months. Through June 4, 3D Systems is up 30%, Stratasys is up 2%, and The ExOne Company (NASDAQ: XONE) – which went public in February and focuses on high-end, industrial use printers -- is up 27%. 

For the 1-year period, 3D Systems and Stratasys are up 68% and 14%, respectively. ExOne is up 53% since its Feb IPO. 

Some of the rise since April has been "earned," as 3D Systems and Stratasys turned in solid Q1 results since my article. (ExOne missed estimates, but the numbers look worse than the reality. Its systems run $500K and up; thus, selling just one printer short of expectations can cause a significant miss, especially since the company is a small cap stock.) Bulls shouldn't be overconfident, as short covering has no doubt been a reason for part of these run-ups. Short interest remains high at 31%, 11%, and 28%, respectively, of floats. 

In my last article, I recommended buying two or three 3-D printing plays for investors wanting exposure to the industry. At that time, I particularly liked 3D Systems, as it had the best overall numbers, not to mention a CTO who invented 3-D printing. Its valuation (27 forward P/E and 1.2 5-year PEG) was reasonable then. That has changed. Its forward P/E is now 34 and the PEG is 2.9. A 1.2 PEG is reasonable; a 2.9 is running out of oxygen territory.

Some current numbers:

<table> <thead> <tr><th> <p><strong>Company</strong></p> </th><th> <p><strong>Trailing P/E</strong></p> </th><th> <p><strong>Fwd P/E</strong></p> </th><th> <p><strong>5-Yr PEG</strong></p> </th><th> <p><strong>3-Yr Avg Rev Growth</strong></p> </th><th> <p><strong>3-Yr Avg EPS Growth</strong></p> </th><th> <p><strong>Net Margin (ttm)</strong></p> </th><th> <p><strong>ROE (ttm)</strong></p> </th><th> <p><strong>Debt/Equity (mrq)</strong></p> </th></tr> </thead> <tbody> <tr> <td> <p>3D Systems</p> </td> <td> <p>100</p> </td> <td> <p>34.4</p> </td> <td> <p>2.9</p> </td> <td> <p>46.3</p> </td> <td> <p>249</p> </td> <td> <p>10.2</p> </td> <td> <p>9.7</p> </td> <td> <p>0.10</p> </td> </tr> <tr> <td> <p>Stratasys</p> </td> <td> <p>N/A</p> </td> <td> <p>31.5</p> </td> <td> <p>1.5</p> </td> <td> <p>29.8</p> </td> <td> <p>21.6</p> </td> <td> <p>(4.3)</p> </td> <td> <p>(1.3)</p> </td> <td> <p>0</p> </td> </tr> <tr> <td> <p>ExOne</p> </td> <td> <p>N/A</p> </td> <td> <p>78.1</p> </td> <td> <p>N/A</p> </td> <td> <p>N/A</p> </td> <td> <p>N/A</p> </td> <td> <p>(31.1)</p> </td> <td> <p>N/A</p> </td> <td> <p>0.06</p> </td> </tr> </tbody> </table>

Sources: Yahoo! Finance & Morningstar. Data to June 4. All figures percentages, except PEs, PEGs, and D/E. 

The bottom line

My opinion remains the same as in April. However, there's now more emphasis on these stocks being suitable for those with higher-risk tolerances given the now even higher valuations and high betas. Ideally, investors should have knowledge of risk management practices. 

"There's little doubt that 3-D printing will be a major disruptive technology. The industry is expected to grow at a 25+% annual clip for the next six or more years.

That said, identifying the eventual winner or winners is especially difficult with emerging technologies. Thus, those interested in investing in 3-D printing might consider buying a couple companies to cover more bases. I'm not suggesting investing more than you might otherwise, just that you divide what you'd invest in one stock into two, or perhaps three. One huge winner will more than offset one or two so-so stocks or even losers."

Investors can also gain exposure to the industry through investing in companies that make 3-D design software, such as Dassault Systems and Autodesk, among others. 

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BA McKenna has no position in any stocks mentioned. The Motley Fool recommends 3D Systems, Stratasys, and The ExOne Company. The Motley Fool owns shares of 3D Systems and Stratasys and has the following options: Short Jan 2014 $36 Calls on 3D Systems and Short Jan 2014 $20 Puts on 3D Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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