The Next Big Thing
Ben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
3D printing has become the next wave of technology to take the world by storm. 2012 was a year to remember for companies like 3D Systems (NYSE: DDD) and Stratasys (NASDAQ: SSYS) as they doubled and tripled their stock values. Now the question is, can these companies do it again in 2013, and is it possible another company can compete with them?
The dominance established by 3D Systems and Stratasys makes it very hard for another company to enter the marketplace. But as we’ve seen over the years this doesn’t mean it is impossible to take on the big guys. Perceptron (NASDAQ: PRCP) is making its attempt to enter the market with their new Helix metrology solution, which allows users to resolve even their most complex measurement tasks with speed and precision. This solution has the potential to introduce technological breakthroughs that dramatically increase system capability and content.
Overcoming their Dominance
3D Systems and Stratasys have a distinct advantage over Perceptron. They have created a large moat around themselves that allows for them to set competitive prices and patents on materials. These patents are especially important for 3D because it allows them to create a printer that can’t be replicated.
Stratasys, with their recent merger with Objet, has become the largest 3D company and has expanded their technology even further. With Objet on board Stratasys can now offer functional prototypes and production parts, as well as develop faster printers with finer details and smoother surfaces.
Perceptron has passed the daunting task of not only getting into the 3D marketplace but also of coming up with another potential disruptive technology. Any technology seen as disruptive can be met with skepticism and uncertainty, but this is usually true with anything new. Developing a name for yourself and a successful track record can lead to success like 3D and Stratasys have seen. Now investors want to see this continued success, and if they don’t see it happen they will continue on to the next best thing.
Breaking it down
Right off the bat we can see that Stratasys and Perceptron don’t use any debt to finance investments or operations. This is good in the sense that they don’t have to worry about paying debt obligations. But being leveraged like 3D systems allows for more undertaking of more projects, which can lead to expansion. Evaluating all five metrics, Stratasys comes in as the most expensive and Perceptron is the least expensive. 3D Systems posted the highest quarterly revenue growth, which can back up their use of debt. With no debt and the lowest price-to-sales, Perceptron has the look of an undervalued stock with immense growth potential.
Free cash flow is very important because it shows earnings power and gives an idea of the amount of cash a company can dish out to shareholders.
3D and Stratasys are much larger companies, and therefore have a lot more cash to dole out. Perceptron and 3D have posted positive cash flows of late, but Stratasys took a big hit in 2011. But with the 2012 fiscal year yet to be completed I expect all three to have positive cash flows that coincide with the massive returns that shareholders received.
Making a statement in the market can be huge for Perceptron. If they can compete with the big guys then they can potentially become the big guys. If this technology is as disruptive as it appears to be and the valuations hold true, we might just see the next big 3D company to boost our portfolios.
gomonkies23 has no position in any stocks mentioned. 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!