3D Printing: Dicey Opportunity?
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3D Printing is an extension of the Rapid Prototyping manufacturing technique of the 1980s. Chuck Hull of 3D Systems patented the first such commercially viable, Stereolithography, in 1986. More sophisticated technologies such as Genisys, Z402, Actua 2100, and Spectrum Z510 evolved in the 1990s.
Although 3D Printing technology has been around, it is yet to achieve its full potential. Most changes are viewed skeptically because their impact is a matter of debate and speculation. Just recently, the first workable gun has been made using 3D printing and may be a reason why this technology is being touted as the impending third industrial revolution.
Among the better known 3D printing companies are 3D Systems (NYSE: DDD), Exone (NASDAQ: XONE), and Stratasys (NASDAQ: SSYS). Investment in these and other such companies appear a bit risky at present but could have the potential to catapult the investor into vast returns.
3D Printing: Basics and Evolution
3D Printing is a computer-controlled, additive manufacturing process. Parts are made by deposition of thousands of layers over one another. Each layer is a cross section of the part at a certain level. The process is automated by feeding the design drawings to a computer that directs the manufacturing machine.
Such a technique is in contrast to traditional subtractive methods that employ calculated removal of material from the existing block. 3D printing is faster, less expensive, and more flexible than subtractive processes and provides a final product of better quality. 3D printing enables production of prototypes and final parts of plastic and metals in engineering, medicine, archeology, etc.
3D Systems possesses the widest range of 3D printers for additive manufacturing, and its business of production of customized, on-demand parts is in great demand. The company also sells raw plastic and the consumable metal used in its machinery and does business in the U.S., Europe, and Asia.
Exone manufactures parts from diverse materials such as silica sand, stainless steel, ceramic, glass, and bronze. The company also makes casting molds and sells 3D printing machines. It has five production centers in the U.S. and caters to the automotive, heavy equipment, aerospace, and oil-gas industries.
Stratasys is headquartered in Minneapolis, U.S.A. and in Rehevot, Israel, and it was formed by the merger of Stratasys and Object Ltd. The company makes a variety of 3D printers and materials for manufacture of new-design products, as well as for low-volume manufacture of finished goods. It also makes prototypes of production grade parts and manufacturing tools for aerospace and defense applications.
3D Systems has a market cap of $4.15 billion. Most impressive, however, is its price to earnings (P/E) ratio of 67.1, meaning its stock is highly overvalued due to great demand. Its stock price has shown consistent upward movement over the past year. Introductions of new products gave the company a 31% increase in revenue in Q1 2013.
Stratasys has a slightly lower market cap of $3 billion. Strong worldwide demand has caused a 118.2% growth in its revenue in Q1 2013. Exone has the smallest market cap of $0.57 billion among these three and reported an increased loss along with increased revenue in Q1 2013 – $7.9 million compared to $2.7 million in Q1 2012.
Apparently, Wall Street is waiting until 3D printing becomes more acceptable. This is manifested in the slightly bearish sentiment for this sector despite impressive gains. 3D Systems, Exone, and Stratasys are the exceptions with consistent upward trends.
Such undervaluation does present an opportunity for proactive investment into a sector that is presently undervalued.
3D Systems is at the leading edge of a disruptive technological revolution, with the broadest portfolio of 3-D printers in the industry. However, despite years of earnings growth, 3D Systems' share price has risen even faster, and today the company sports a dizzying valuation. To help investors decide whether the future of additive manufacturing is bright enough to justify the lofty price tag on the company's shares, The Motley Fool has compiled a premium research report on whether 3D Systems is a buy right now. In our report, we take a close look at 3D Systems' opportunities, risks, and critical factors for growth. You'll also find reasons to buy or sell the stock today. To start reading, simply click here now for instant access.
Mike Thiessen has no position in any stocks mentioned. The Motley Fool recommends 3D Systems, Stratasys, and The ExOne Company. The Motley Fool owns shares of 3D Systems and Stratasys and has the following options: Short Jan 2014 $36 Calls on 3D Systems and Short Jan 2014 $20 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!