An Unlikely 3D Printing Stock Might Now Be The Favorite
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In 2012, companies 3D Systems (NYSE: DDD) and Stratasys (NASDAQ: SSYS) were the market’s top performers, with gains of more than 200%. Both companies have dominated the 3D Printing market and have successfully captured the imagination of investors and consumers regarding the possibilities for 3D printing. Yet, as of late, a new favorite has emerged, and that company is ExOne (NASDAQ: XONE), but will it continue?
A Look At The Leaders
3D Systems and Stratasys combine to control most of the 3D printing space, although different industries. 3D Systems is mostly consumer while Stratasys is the clear industrial winner. Both companies have their niche, and are growing rapidly.
3D Systems is forecasting revenue growth of 37% over the next 12 months and Stratasys has growth expectations of 20%. The industry as a whole is booming: It has grown from $983 million to $2.2 billion during the last six years. Now, with an industry growth rate of 25-30%, many analysts are expecting a $10 billion market in the next 10 years.
Due to the growth and potential of this market, it’s no surprise that investors are particularly bullish when it comes to 3D printing stocks. Thus, both companies are expensive. 3D Systems trades at almost 12 times sales and at 36 times next year’s earnings; mostly because of its current growth. Stratasys trades at 12.5 times sales at 35 times next year’s earnings, despite having slowed growth.
The reason is because many believe Stratasys has more long-term potential, as aerospace and automotive are expected to be major 3D printing markets. Overall, with such an explosive industry, I say both present long-term upside.
The New Kid On The Block
Combined, Stratasys and 3D Systems have almost $650 million in revenue -- ExOne has just $33.9 million in revenue over the last 12 months and is not profitable – yet ExOne trades at 20.5 times sales. ExOne is the new 3D printing stock in the market, and investors have responded well. Its valuation relative to fundamentals far exceeds that of its larger competitors. However, with almost 200% year-over-year revenue growth, many believe its short-term outlook and acquisition prospects are great at this time.
While Stratasys and 3D Systems sell printers in more volume, ExOne manufacturers the largest printers for the industrial space. In fact, it sold just five printers during its last quarter, and produced revenue of $7.9 million. The upside for the company lies in the belief that large manufacturers such as those in automotive might eventually begin to use these printers for production. If so, ExOne’s large printers would benefit, as would its metal printing approach.
In the 3D printing space, metal printing has become the new growth industry. Earlier this month, 3D Systems acquired Phenix Systems, a 3D printing company that works with steel, alloys, and precious metals. So far, Stratasys is yet to acquire a metal printing company, but many believe that it will seek an acquisition to capitalize on the potential that it offers. Dare I say that ExOne is available and would provide Stratasys with more diversity in the industrial space.
Ever since ExOne became a public company, it has been the preferred investment choice. Since that time (February 8, 2013), Stratasys has returned a gain of 4.5% and 3D Systems has produced gains of 9%. Meanwhile, ExOne has doubled!
In my opinion, ExOne is an interesting play. Yes, the company is very expensive and is not profitable – but it does have a business that no other company in the space offers – the company also has a very large pipeline of products in development. To me, I find it highly promising that just five machines sold could create sales growth of almost 200%, and I believe that so long as the company is growing rapidly, it will remain attractive and will stay in the conversation as an acquisition target.
Brian Nichols 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!