3D Printers: Big Customers First, Consumer Market Later
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One of the most talked about tech investments of 2012 and 2013 has been 3D printing companies. Investors have seen shares of top 3D printer manufacturers more than double over the past year, before cooling off a bit in late January. But with shares still well above where they were a year ago, investors are wondering whether it is time to buy, hold, or sell 3D printing companies.
Now you too can have a 3D printer (but only if you can afford one)
It sounds like such an amazing idea. You want new smartphone? Print it at home. Need a new kidney? A 3D printer’s got it ready in hours. The imaginable potential of 3D printing is nearly limitless and reads like something out of Star Trek. However, investors must face the reality of what 3D printing technology can do, as well as looking at future prospects for 3D printing companies.
After years of living in corporate laboratories, the 3D printer is finally coming to the consumer level. However there are significant limits to these home-based printers gaining acceptance. Among the best known consumer 3D printers is the Cube, offered by 3D Systems (NYSE: DDD) for a starting price of $1299. But this printer has major limits to it. It can only print an object up to 5.5” x 5.5” x 5.5” and can only print in one color. More expensive models allow for the printing of larger objects and more colors, but this combination of cost and utility keeps the currently existing 3D printer as a novelty item for the consumer market.
Rival manufacturer Stratasys (NASDAQ: SSYS) advertises a more capable 3D printer for small groups and professionals starting at $9,900. For this increase in cost, buyers can experience much more of the currently available 3D printing technology. Of course, Mojo, as Stratasys calls this printer, is not priced for the mass consumer market but it brings us to the next point about 3D printing technology. While the democratization of manufacturing and the ability for consumers to make all their heart’s desires at home is a noble goal, the current position of 3D printing is within prototyping labs at companies and universities.
But this isn’t necessarily a bad thing. The first computers were owned by the government before moving into the corporate market. When the consumer market began to acquire computers the first ones rivaled some cars in cost. Yet the computer survived anyway and has led to the creation of some of the most valuable companies of all time. This historical perspective shows that 3D printers do not need to immediately take the consumer market by storm to survive; they just need to create awareness and use profits earned from corporate sales to continue development of future offerings.
So the question now is whether these companies are appropriately priced or whether they have bubble-style valuations. Below is a table comparing three top public 3D printing companies.
|Company||Share Price (March 6, 2013)||Estimated 2014 Earnings||P/E 2014|
|The ExOne Company (NASDAQ: XONE)||$26.79||$0.74||36.20|
Earnings estimates sourced from Yahoo! Finance
Looking at the table we can see that 3D Systems and Stratasys are not too richly valued, provided they can live up to earnings expectations. ExOne shares are more expensive on a forward P/E basis, but one must keep in mind that ExOne is far smaller than its two rivals, a position that carries its own advantages and disadvantages. Considering the great future potential of 3D printing, a P/E in the 20’s can be considered reasonable for an investment in either 3D Systems or Stratasys.
Printing the future
3D printers will not take over the consumer market overnight due to cost and technological constraints, but they don’t need to for 3D printer manufacturers to be successful. Demand from corporations and research institutions will fund the operations of 3D printer makers and allow them to grow earnings while building technology for mass market expansion. At less than 30 times earnings, the correction in 3D Systems and Stratasys shares provides a good entry point for tech investors interested in this emerging technology.
TulipSpeculator1 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 $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!