The 3D Printing Craze Creates Large Valuations
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
When you stop to consider the potential of 3D printing, on a consumer level, it is easy to see why investors are so excited about companies in the space. Both 3D Systems (NYSE: DDD) and Stratasys (NASDAQ: SSYS) have been among the best performers in 2012, and both operate in the space. However, both are now priced for perfection and may be too expensive.
The idea that you can insert a material into a machine, find an object on your computer, and then print the object in 3D is truly remarkable. In some ways it seems like something from a science fiction movie. However, it is real, it’s happening, and two companies are leading the charge.
The speculation of potential consumer adoption has led shares of 3D Systems and Stratasys significantly higher in 2012. Both stocks are trading near new highs, following 3D System’s 215% gain and Stratasys’ 112% YTD gain. Both companies recently announced earnings, and both saw significant gains from consumer 3D printers and sales for the full-year that exceed analyst expectations.
A 3D printer is something that I’d like to have, but I don’t know what I would use it for. Supposedly, you can buy these printers in all shapes and sizes to print virtually anything. Some use the printers for décor and then some have reportedly printed furniture, such as couches. Obviously, the larger device can print larger goods, and is also more expensive. But still, this is something that some believe could become the “next big thing” or could create the next frenzy with consumers who want one in their homes.
Unfortunately, we can’t look into the future to know the ultimate size of this business, or if it will grow to become a multi-billion dollar business in the consumer space. As of now these two companies are the most significant players in the 3D printing industry. However, it’s a space that companies such as Hewlett-Packard could easily enter, and dominate, which creates risk in regards to these two stocks.
First, 3D Systems, is a company growing sales by nearly 60% year-over-year and is a business that is fundamentally improving in all metrics. However, it also trades with a P/E ratio of 67.0 and a price/sales ratio of more than 7.50. The company is expected to double earnings over the next year, because of its forward P/E ratio of 28.86; however, its valuation compared to sales and its high expectations could be a bad sign for investors looking to invest right now.
Stratasys has fallen from its high over the last month, but still trades with a P/E ratio of 76.00, and a forward ratio of 39.72. Therefore, the company is expected to grow its bottom line, but not to the same degree as 3D Systems. The company is a little cheaper than 3D Systems compared to sales, with a price/sales of 7.23, but not by much. Stratasys is the smaller of the two companies, but has very interesting consumer products. The company has seen explosive growth over the last few years, but is still priced for perfection, much like 3D Systems.
An investment in either 3D Systems or Stratasys is a risk because we don’t know how well consumers will adopt 3D printers and because both stocks are valued very high compared to fundamentals. Obviously, the market believes that 3D Systems is the better company, however Stratasys has the better balance sheet with no debt and a much larger retained earnings position. This will be a very interesting space to watch over the next several years. If consumer demand continues to rise, and if both companies do a good job at marketing and promoting their products, then both could become much larger companies with billions in sales. However, because of the uncertainty regarding 3D demand, it could also be a dangerous space. Overall, I wouldn’t invest too much in either company, but a small position may prove to be wise.
BrianNichols has no positions in the stocks mentioned above. The Motley Fool owns shares of 3D Systems. Motley Fool newsletter services recommend 3D Systems and Stratasys. 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.If you have questions about this post or the Fool’s blog network, click here for information.