3 Reasons This Stock Is Still a Buy After Rising 250% Last Year
Meena is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Three-dimensional printing has received quite a bit of hype over the past year. Though the technology has been around for more than two decades, investors’ optimism on this industry has improved dramatically, and the stock prices of key players 3D Systems (NYSE: DDD) and Stratasys (NASDAQ: SSYS) tell the story. Shares of the former have risen by 103.2% in the last 12 months, and Mr. Market has pushed 3D Systems up nearly twice as high.
Now, triple-digit returns over a fairly short time frame will have plenty of armchair analysts calling for a bubble, but it’d be a mistake to simply sell out of both companies because of their recent successes. 3D Systems can still make its investors money. The stock’s bullish thesis boils down to three key factors:
1) Usability and affordability.
Most importantly, it appears that 3D Systems’ advantage over Stratasys and the rest of its competitors—MakerBot and Hewlett-Packard (NYSE: HPQ) have products in this space—lies in its usability and affordability. Regarding the latter point, 3D Systems makes a number of printers, though many analysts are most excited about its Cube 3D model, which is priced just below $1,300. Stratasys and MakerBot’s most accessible models are priced near $10,000 and $2,000 respectively.
While most of its competitors’ three-dimensional printers are focused on providing workplace solutions, 3D Systems’ Cube 3D has an intuitive in-home feel, and its design specifications have been tailored so users of all ages can bring their favorite creations to life. For those feeling less creative, the company offers preset designs that can be easily downloaded as well.
2) Product diversification.
In addition to its Cube 3D printer, 3D Systems also offers upper-tier ZPrinter, ProJet and BotMill models. As we proclaimed on Insider Monkey last year:
“3D Systems’ role in its industry is equivalent to a hypothetical scenario where Apple offered its current stable of iPods, and serious competitors only had a 160 gig version to sell.”
With a plethora of price options aimed at the full spectrum of users who will want 3D printers in the future, it’s difficult to justify betting against this company. In fact, the only reason many bears have started to enter the conversation is because of the stock’s so-called “premium” valuation. But, as with many things in life, appearances can be deceiving.
3) Shares aren’t as expensive as they look.
At 37.3 times forward earnings and a PEG near 4.1, 3D Systems looks like a growth-trap at first glance. Yes, obviously the company operates in an industry with mammoth potential, but would investors be better off waiting for a more attractive entry point? In short, no.
In comparison to closest peer Stratasys, which trades at a forward P/E of 42.1x and a PEG of 4.5, 3D Systems is actually priced at about a 10% discount. Neither company pays a dividend, but at 18 times cash, 3D Systems is way cheaper than Stratasys (31.4x) from this standpoint.
In terms of growth, the sell-side expects 3D Systems to generate earnings expansion near 20% a year over the next half-decade—close to what’s expected of Stratasys—but what sets the company apart is its profitability. 3D Systems’ profit margin of 11.2% is about 140 basis points higher than its closest peer, and its 50%-plus gross margin is more than twice the level of Hewlett-Packard.
What does the smart money think?
At the end of the last 13F-filing period with the SEC, some of the most notable hedge funds invested in 3D Systems included Tiger Global Management (see the massive hedge fund’s full portfolio), Louis Navellier’s Navellier & Associates, and Cliff Asness’ AQR Capital (see Cliff Asness’ newest stock picks).
Whether it’s 3D Systems’ product advantage or its fairly attractive valuation, there are plenty of reasons to still be bullish on this space, even in the face of all that “bubble” talk. Clearly an industry leader, this company is positioned very well to be the face of 3D printing’s big push into consumers’ living rooms going forward.
This article is written by Jake Mann and edited by Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article. 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!