Which 3D Printing Stock Is Right for You?
Dana is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Last year I took a flyer on a 3D printing company, 3D Systems (NYSE: DDD) and I have been amply rewarded. Since then, the company's arch-rival, Stratasys (NASDAQ: SSYS) has combined with an Israeli company called Objet to become Stratasys Ltd., and a third 3D printing company, called XONE, has filed for an IPO.
Which stock makes the most sense for 2013?
What Is 3D Printing
The concept of 3D printing is that you can turn a computer aided design of something into a physical artifact, either by depositing material onto a backplane, fusing materials that have been deposited into a form, or by slowly exposing liquid to light. The result is that custom parts actually cost as little to fabricate as mass-produced parts.
A 3D printer can also create a highly accurate mold that can be filled with metal, which hardens and exposes the piece when the mold is removed. Wikipedia offers a good guide to the techniques and types of 3D printers.
There are a wide variety of manufacturing techniques, a wide variety of materials, and a wide variety of printer sizes and prices on offer. Most go into heavy industry, but some small companies are now building them for the consumer market, and Staples has announced a 3D printing service.
As with regular printers, 3D printers have a robust aftermarket, producing the material their printers will use. Many are also expanding into software.
As previously noted, I bought some shares of 3D Systems in November at about $47/share. They currently trade at around $61.
The company produces a wide range of printers for a wide variety of applications, everything from customized body parts to on-demand parts to airplane parts. Before the term 3D printing became commonplace, 3D was said to be a pioneer in stereolithography, the slow deposition of material according to a computerized plan, which is then either fused, or solidified, in a separate process.
3D Systems, based in Rock Hill, SC, has more than doubled revenue in the last two years, and had already beaten its 2011 totals by September of this year. The company also makes rising profits, and decided to use debt late in 2011 to keep expanding in line with the market. Debt is now nearly one-quarter of assets, and it's putting that money to work on acquisitions, most recently announcing a deal to buy Geomagic, which creates 3D authoring software. The company has made two dozen acquisitions in the last two years and is hungry for more.
The New Stratasys
Stratasys was transformed late last year, as the second-largest 3D printing company acquired the third-largest, Objet of Israel. The combined company took the Stratasys name, changing the Inc. for a .Ltd., and remains based in Minnesota.
The company first came to public attention a few years ago when it had a short-term agreement with Hewlett-Packard to OEM low-end 3D printers under the HP DesignJet name. That agreement was ended last year.
Since the combined company came to market in early December, the stock is up 21%. The company is still in a reorganization mode, having scheduled an extraordinary meeting of shareholders next month to ratify the new arrangements. The merger saves Objet millions of dollars in Israeli taxes, and the resulting company is already profitable.
The new Stratasys offers units for fast prototyping, the production of wax casts, and finely detailed production using a technique similar to inkjet printing. The combined company shows sales more than 60% higher than those of 3D, with over half that money going to gross profit. There is also no long-term debt, and over $20 million/quarter in cash flow is being generated.
Since the new Stratasys came to market, 3D Systems has outpaced it in gains by 2-1, but that is subject to change, and Stratasys sports a higher PE multiple. Both are extraordinarily high, 98 for Stratasys and 91 for 3D. You're buying growth, however, not earnings.
Should You Buy the XONE IPO?
The XONE S-1 is just out and it makes interesting reading.
The company is only showing results for 2010 and 2011, with losses in both years, but sales rising nearly 20% per year from $13.4 million to $15.3 million. The balance sheet shows considerable accumulation of debt, and is now 350% of equity, but you would expect proceeds from the IPO to reduce that significantly.
XONE, which is based in the Pittsburgh suburb of North Huntington, has a product line that features very large printers for working in sand and metal, and also offers a laser pulse unit that works in five-axis of motion. Its newest unit, the M-Flex, works 10 times faster than its previous metals printer.
The key manager to my mind is probably German inventor Rainer Hoechsmann, who works out of offices in Augsburg, Germany and is listed as general manager of ExOne GmbH, formerly called Prometal. He holds several patents in the area.
I don't think there are any real losers in this space. The 3D printing revolution has really just begun. Having looked at the landscape more closely, I think Stratasys has great prospects once it gets organized, given its higher sales and cleaner balance sheet when compared with 3D. But both will do well, and if either should falter they are likely to be taken out by a larger company at a hefty premium to whatever their depressed price might be.
DanaFBlankenhorn owns shares of 3D Systems. The Motley Fool recommends 3D Systems and Stratasys. The Motley Fool owns shares of 3D Systems and Stratasys and has the following options: Short Jan 2014 $55 Calls on 3D Systems and Short Jan 2014 $30 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!