Should You Invest in 3D Printing Services?
Adrian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
3D printing is definitely a cool technology, but are the printers also cool as an investment opportunity?
While the current size of the 3D printing industry is small, engineering advancements will bring new opportunities to many industries and especially to manufacturers. By turning a design into a prototype using 3D printers, manufacturers can save a lot of time and money. We also haven't talked about the opportunities for direct consumers. Applications for 3D printers range from health solutions to hobbies and more!
For those interested in getting some early exposure to this hot emerging industry, in the U.S., at least 3 public companies are listed as 3D printer companies. This article covers each of them: 3D Systems (NYSE: NNN), Stratasys (NASDAQ: SSYS) and Ex-One (NASDAQ: XONE). Let's check them out.
3D Systems: Attractive products but current market valuation may be too high
3D Systems is an early mover. In principle, there's nothing wrong with the company. Just like the size of the market, 3D Systems is showing an amazing growth rate. Sales increased 31% to $102.1 million in the first quarter compared to last year, and were driven by a 61% increase in sales of printers and other products. The company is also about to launch new products that shall support its growth.
The problem with 3D Systems is not the company or industry itself. Too many investors got interested in the stock way too early, and this has caused the stock to become rather expensive due to a sudden increase in demand. The company's stock is currently trading at 105 times its trailing earnings, with a forward price-to-earnings ratio of 37.3 according to Morningstar. To sustain this ratio in the middle run, 3D Systems will have to perform really well in terms of sales and profit, which is feasible in the long run but may be quite a challenge to achieve in the next two quarters. To see how relatively high the price-to-earnings ratio of the company is, just remember that the average ratio of the whole industry is 17.6 according to Morningstar.
Even though the current valuation may not look attractive, this stock has a strong exposure (it is said to have 16% of total market share) to one of the most promising industries of our decade and is therefore worth watching.
Stratasys: 30% revenue growth and interesting new consumer exposure
Stratasys is also worth watching. In its most recent quarterly report, Stratasys announced a 30% revenue growth and 58% increase in gross margins. Its earnings per share came out at $1.49, up 59.1%. The company shipped nearly 30,000 systems in 2012, generating revenues of $359 million.
The company recently announced its acquisition of MakerBot, a desktop 3D printer manufacturer in Brooklyn. This suggests that Stratasys is very interested in marketing its products directly to the consumers. This is quite strategic as the company has so far been focused largely on the enterprise market, becoming a leader in that segment. Its enterprise machines sell for $10,000 to $600,000 and are sold mostly through resellers.
The downside of so much good news recently is that the company's current valuation is also stratospheric. The company's price-to-earnings ratio stands at 145.34, which is even higher than 3D Systems.
ExOne: Expensive printers, expensive stock
ExOne went public just four months ago at $14-$16 per share, and since then it has experienced a massive 130% share price increase. Manufacturing 3D printers since at least 2001, ExOne chose a good time for its IPO. Considering that the company made about $50 million in sales and around $1.5 million in net income, the company's current market capitalization of $820 million implies that it is trading at more than 12 times its enterprise-value-to-sales ratio which suggests that this isn't a good time for buying shares.
ExOne's printers are also quite expensive. Depending on the model, a printer's price may range from $100,000 to $1.5 million! This limits the company's market considerably. The company is said to have about 1.3% total market share, but expects that to grow in 2013 to 3%.
How big can the 3D printing industry get?
Pascal-Emmanuel Gobry from The Business Insider has called this industry the next trillion dollar industry. Is that true?
One of the most respected authorities on the additive manufacturing and 3D printers industry, Wholer's Associates, give us a hint. This chart was presented in the 3D Systems January 2013 presentation:
The industry will show strong double-digit growth over the next several years. By 2017, sales of 3D printing products and services will reach $6 billion worldwide. By 2021, sales will reach $10.8 billion. These numbers don't include the prototyping service industry, either; they only refer to printers and directly-associated products and services. Just last year, the market for products and services grew 28.6% to $2.204 billion!
Naturally, more than one company is interested in joining this industry as soon as possible. Wohlers mentions that 16 companies in Europe, seven in China, five in the U.S., and two in Japan now manufacture and sell 3D printing systems. Needless to say, savvy investors are also excited about this new technology.
The bottom line
In this article, I reviewed the prospects of the 3D printing industry and analyzed three American stocks with direct exposure to this promising new market. While I believe that the 3D printing industry is currently growing at an amazing rate, as investors we need to be careful with the current overvaluation of 3D printing stocks. It seems that too many investors have got interested in this new technology too early. That being said, I think that 3D Systems and Stratasys are worth watching carefully, despite their high price-to-earnings ratios.
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Adrian Campos has no position in any stocks mentioned. The Motley Fool recommends Stratasys and The ExOne Company. The Motley Fool owns shares of 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!