Is 3-D Printing The Next Bubble?
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As an investor who started in 1997, I have been through the dot com technology, real estate, and what many are calling the current bond bubble, and I see how devastating they can be to one’s financial health. With the increasing hype and media exposure leading to massive increases in virtually anything related to 3-D printing, let's analyze the three most well-established stocks in this arena, and see whether they are still worthy of an investment.
Does 3D Systems pass the test?
3D Systems (NYSE: DDD) has been around since 1986, but only came public recently in 2011. Since then, it's up well over 200% in just about 18 months, which is quite a move higher. The company operationally has been terrific, matching or beating consensus analyst estimates the past four quarters, while analysts still expect terrific growth exceeding 25% annually over the next five years. So with all these positives, why don’t we just step in and buy DDD?
As billionaire Warren Buffett eloquently said, “Price is what you pay, value is what you get." That's very applicable when analyzing 3D Systems. The company is now trading at a rich 99 times trailing earnings, 43 times forward earnings, 9 times book value, and a 48 times enterprise value/EBITDA, showing us that we are paying a high price for the stock.
However, 3D Systems might justify those valuations with explosive growth, a business model requiring relatively few capital expenditures, healthy returns on equity exceeding 11%, and nice operating margins nearing 19%. The company is definitely not for the faint of heart, but it can lead to outsized gains if it continues to execute this well.
Will Stratasys lead us to stratospheric profits?
Stratasys (NASDAQ: SSYS) has been public for much longer than 3D Systems. Since its 1994 IPO, it has had a nice, steady move higher. After bottoming out at $20 per share in 2011, it's enjoyed a fantastic run, up approximately 300% to date.
The company has exceeded consensus analyst estimates in three of the last four quarters. As with 3D Systems, Stratasys's analysts are calling for 25% annual revenue growth over the next five years. But the company's also expensive, at 95 times trailing earnings, 43 times forward earnings, 9 times book value, and 41 times enterprise value/EBITDA.
However, while the two companies seem to be the same, Stratasys has a lower 16.9% operating margin and 9.7% return on equity than 3D Systems. Nonetheless, while 3D Systems seems to be the better buy, I think splitting a position between the two would not be a bad idea, since it will take out company-specific risk.
Is there money to be made in printing human organs?
Organovo Holdings (ONVO) is definitely the most speculative of the three. It's the only one yet to make money, and it has not quite yet made it to the big board. (Its IPO is expected within the next six to nine months.) However, one would be remiss to simply avoid the stock without hearing the whole story.
On a valuation basis, the company looks nonexistent. It continues to burn cash while establishing its operations. However, the balance sheet looksmore than shored up now; it has virtually no debt, and with the recent redemption of 2.9 million warrants, the company can survive at least another two years at its current burn rate.
Moreover, as it establishes more partnerships, including its Jan. 30 deal with the well-respected Knight Cancer Institute at Oregon Health & Science University, Organovo will surely garner more credibility, and ultimately sales. Again, though, please realize this is rather speculative, and exercise caution.
The Foolish take
3-D printing related stocks have had a nice run. But with their revolutionary technology, still somewhat reasonable valuations, and immense potential ahead, I feel that three three stocks mentioned above should definitely be worth a look -- assuming you're comfortable with their risk profile, and the certainty of price swings ahead.
Wiseinvestors 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!