Beaten down excitement over 3D printing could come back with a vengeance
Investment fads come and go, and when they go it doesn’t always mean the earlier excitement was unwarranted. In fact, it can be an ideal time to invest. Once the hype has passed, valuations can actually be more compelling and put the investing odds back in favor of the investor.
That looks to be the case with 3D printing, which really just got going in the 1990s. Back in 2013, the market had grown enamored with 3D printing, but the excitement has slowed considerably since.
One issue is the industry is seeing much more tepid demand lately. This helps explain the decreased demand for the stocks. But long-term growth is expected to be 25%, suggesting the industry has some of the more compelling growth projections out there. One key industry player expects 3D printing to grow to a $21 billion market by 2020.
3D printing isn’t intuitive, but represents a revolutionary manufacturing process by which an object is printed from a digital image or three-dimensional computer model. CAD (computer-aided design) software can design a part or product that a 3D printer is able to create.
The below pure plays in 3D printing offer direct exposure to the best this industry has to offer. Of course, large, diversified and incumbent manufactures including General Electric Company (NYSE:GE) could end up eventually dominating the space. That could easily include buying out any of the players mentioned today, which would offer another chance for investment upside. Given the overall growth expected for the industry, investors should be looking for the safest way to position their own respective portfolios.
3D Printing Stocks to Buy: Stratasys (SSYS)
If there is an industry bellwether in the 3D printing space, Stratasys Ltd (NASDAQ:SSYS) is it. The company considers itself the originator of 3D printing, with earlier models of its devices dating back three decades.
In the past decade, Stratasys sales have grown to six times the 2007 level of $112 million. They are projected to reach nearly $667 million for all of 2016 (full year results have yet to be released). The firm’s current market capitalization is $1 billion.
Sales were actually higher in 2014 when they reached $750 million. Despite a steady wave of acquisitions in recent years, Stratasys has experienced a wave of patent expirations that have contributed to increased competition and a near-term hit to sales. Additionally, profitability has been nonexistent since 2012. Back then, Stratasys reported 36 cents in earnings. Losses have accelerated since, but the company should turn back to the black once full-year 2016 results are posted. Analysts expect 18 cents in earnings, though on an adjusted basis (reported GAAP earnings could still be in the red). It could see a near tripling in sales to 48 cents for all of 2017.
That would be a welcome change, and management appears to be rapidly evolving its business model. In addition to selling products, it increasingly offers servicing, tech support and consulting to its customers. A focus on these types of recurring revenue can help offset what has been unevenness in underlying sales.
So, despite the tepid near-term financial condition, Stratasys is still an industry leader and the largest player. It is also partnering with larger industrial players, including Boeing Co (NYSE:BA), Ford Motor Company (NYSE:F) and Siemens AG (ADR) (OTCMKTS:SIEGY). Here is an excerpt describing one of its printers to help illustrate just what a 3D printer is able to do: “Our SLS 3D printers use a laser beam to melt and fuse powder-based nylon and engineered plastic and composite print materials to produce very strong and durable parts.”
3D Printing Stocks to Buy: 3D Systems (DDD)
3D Systems Corporation (NYSE:DDD) sports a higher market capitalization ($1.9 billion) than archrival Stratasys, but is still slightly smaller in terms of overall sales. For the coming year, analysts project $645 million in sales.
If all goes according to estimates, 3D Systems will become the largest industry player in 2017 when it is projected to log $686 million in total sales. Profits are expected to be 44 cents this year (for all of 2016) and rise to 51 cents next year.
Like Stratasys, 3D Systems posted a sizable profit loss in 2015, but has been more consistently profitable historically. It has also generated pretty steady cash flow, suggesting it is earning a real return from its businesses.
3D Systems focuses on the healthcare sectors and the printing of metals parts. Right now, it generates the most consistent profits and cash flow, and can arguably stake its claim as another industry bellwether.
3D Printing Stocks to Buy: ExOne (XONE)
ExOne Co (NASDAQ:XONE) is definitely a speculative investment in the 3D printing industry. It is also smaller than the above players — its current market capitalization is less than $150 million. ExOne had a few reorganizations and the current 3D printing entity went public in February 2013. Cumulative business losses currently sit at around $66 million, but there is reason to suspect ExOne’s fortunes could change going forward.
ExOne has yet to reach consistent profitability and isn’t expected to anytime soon. Analysts do project average 20%-plus annual sales growth over the next two years, which would push sales above $60 million. ExOne’s current backlog of business is nearly $20 million, or a third of annual revenue. This provides some decent visibility that future sales will come in according to plan.
ExOne cited the overall market growth to $21 billion by 2020. Its source was a report sponsored in part by shipping giant United Parcel Service, Inc. (NYSE:UPS). The firm plans to continue to serve the oil and gas, automotive, aerospace, and medical industries. Consumables and service are again targets for recurring, higher-margin sales. Specifically, it makes machines that print specific parts for its customers, and also tools that themselves can print, or make a product.
ExOne appears to be in a reasonably steady financial position. Its most recent financial report (third quarter of 2016) detailed nearly $30 million in cash on the balance sheet, and only a couple of million in debt.
Management’s recent presentation to investors cited two goals. First, it aims to keep its revenue momentum. Once fourth-quarter results are released, investors will be able to verify if the back half of the year was as strong as the first. It also wants to start generating profits consistently.
The author of this article is Ryan Fuhrmann. As of this writing, Ryan did not hold a position in any of the aforementioned securities.
Category: Penny Stock Alerts