10 Trends That Are (Mostly) Already Here
Robert is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Forbes magazine recently reported on “Manufacturing the Future: 10 Trends to Come in 3D Printing.” As I read the article, my gut reaction was: “These trends already arrived.” Let’s take a look:
1. 3D Printing Becomes Industrial Strength. That is, 3D printing goes mainstream in manufacturing rather than just rapid prototyping. Already arrived. Boeing aircraft, Orek vacuum cleaners, General Electric and others use 3D printing in their manufacturing and utilization grows each time I search on the subject.
3. Customization becomes the norm. Customization has arrived, but it would be a stretch to say it’s “the norm.” Bobblehead dolls and “regular” dolls can be custom made via 3D printing. Ditto jewelry or toys or end use parts or concept models or ….
4. Production Innovation is Faster. Already arrived. Stratasys profiled how SelectTech GeoSpatial built a drone aircraft in two weeks for $5,000 instead of two months and $30,000. A great example of product innovation occurring at warp speed. OK, in record time.
5. New Companies Develop Innovative Business Models Built on 3D Printing. Very much already arrived. What do you think 3D Systems and Stratasys represent? Not to mention private companies in the same business.
6. 3D Print Shops Open at the Mall. Hasn’t arrived, yet. Makerbot Industries opened a retail store in New York City. If this flies, then mall stores will surely follow. The Makerbot store is at 298 Mulberry St., if you’re in the neighborhood. If you’re in Belgium or Holland, you can can have some 3D printing done at Staples.
7. Heated Debates on Who Owns the Rights Emerges. Hasn’t arrived yet, but as scan to print and downloadable designs go mainstream, it’s bound to happen.
9. New Machines will Grace the Factory Store. Already arrived, see #1.
10. “Look What I Made:” Children bring home 3D projects from school. Already arrived. Both 3D Systems and Stratasys have printers in schools and colleges across the country. Sheer numbers might be small, but interest seems to be growing.
No offense to the authors of the Forbes article, but I think these “trends” are not to come, but largely have long since arrived.
Are 3D Systems and Stratasys Good Investments?
First, 3D Systems and its bad press from bloggers who questioned its accounting practices. Specifically, questions were raised regarding how 3D Systems reported earnings germane to its recent acquisitions. This caused a sharp sell off of 3D and Stratasys. Not surprisingly, 3D Systems denied any wrongdoing. More importantly, others seem to agree.
Piper Jaffray upgraded its recommendation to “Overweight” and BBT Capital Markets recently initiated coverage with a “Buy” recommendation. I have found no hint of an investigation by the SEC into improper accounting or other financial irregularities. Surely Piper Jaffray and BBT have accountants who could determine if 3D Systems is kosher or not.
On the other hand, Business Insider wrote that 3D Systems uses aggressive accounting practices that put it at high risk for a class action lawsuit. The same Business Insider article documents heavy insider selling and significant concerns about the composition of the company’s Executive Board.
Beyond the controversy...
Once the shock of the accounting questions wore off, 3D Systems stock resumed its relentless upward climb. There are good reasons for that. 3D Systems reported higher earnings in its latest quarter with projected future earnings increases. For all its acquisitions, 3D Systems carries little debt. The company’s newly released CUBE printer was rated “Most Reliable” and “Easiest to Use” by Make magazine. The company continues to announce new materials, applications and printers.
Despite a return on equity of only 11%, the company enjoys a profit margin of 11%, well above the industry average. Revenue and earnings growth yoy are enviable. The company is a leader in a growth industry that many believe has only begun to penetrate the manufacturing world.
On the other hand, the stock sells for 67 times earnings, exhibits volatile trading and is vulnerable to disappointments or bad news.
And Speaking of News...
Stratasys and Objet have finally merged, forming one of the largest 3D printing companies in the market. The newly formed company anticipates millions of dollars of synergy and tax benefits. This will be on top of record earnings announced by Stratasys last month. Like 3D Systems, Stratasys trades at a premium with a PE of 86. Other financial metrics reveal a mixed picture.
Return on equity is 9.7%, profit margins are 9.9%, revenue growth yoy is up 24% but earnings growth declined. The company carries virtually no debt. Stratasys has big expectations built into its price. Only time will tell if the fusion of Objet’s multi-material 3D printing and Stratasys’ printers will produce earnings to justify the current price.
Foolish Final Thoughts
Getting in at the bottom of a growth industry represents the holy grail of growth investors. 3D printing defines a growth industry. While I’m truly excited about the potential of the 3D printing, I am cautious about adding to my positions in either company. The Stratasys merger needs to pay off; 3D Systems could respond to the Business Insider article. Until then, I’m inclined to hold off on investing more in these firms.
dylan588 owns shares of 3D Systems and Stratasys. The Motley Fool owns shares of 3D Systems and Stratasys and has the following options: short JAN 2014 $55.00 calls on 3D Systems and short JAN 2014 $30.00 puts on 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!