3D Systems Takes a Rocket Ride to the Moon

From The Simpsons episode "The Twisted World of Marge Simpson":

Royce McCutcheon: That's the miracle of the franchise... You'll be on a rocket ride to the moon! And while you're there, would you pick up some of that nice, green moon money for me, Royce McCutcheon?

Homer: No deal, McCutcheon! That moon money is mine!           


Shares of 3D Systems (NYS: DDD) hit a fresh all-time high yesterday. Let's take a look at how it got here to find out whether there are still clear skies ahead.

How it got here
For a little while, it seemed like 3D Systems' meteoric run was about to end after its second-quarter earnings appeared to disappoint investors. Despite rapidly growing revenues, the Street had been expecting more, so shares fell for a day before recovering to rise again. Rival Stratasys (NAS: SSYS) had a more favorably received quarterly report soon after, and the wind has been very firmly in both companies' sails in the days since.

Both stocks have been among the absolute best performers on the market over the past 52 weeks, and they have certainly been minting that nice, green moon money for shareholders:

DDD Total Return Price Chart

DDD Total Return Price data by YCharts

How far can these two stocks grow? Let's take a look at some key numbers to see where they stand relative to some historical averages.

What you need to know
There's no doubt that these two stocks have gotten a lot of market love, but it's important to consider how much their valuation ratios have grown. A stock that's running away from its historical norms might be one at risk of correction, and both of these stocks are now well above their average valuations for the post-recession period:

Metric

3D Systems Result

Stratasys Result

Market Cap $2.2 billion $1.4 billion
Net Margin (TTM) 10.3% 12.1%
Free Cash Flow (TTM) $39 million $9 million
Current P/E 67.3 70.4
2-Year Average P/E 36.2 58.0
Difference from Average P/E 85.9% higher 21.4% higher
Current Price to Free Cash Flow 73.9 67.9
2-Year Average P/FCF 36.9 36.4
Difference from Average P/FCF 100.3% higher 86.5% higher

Source: Morningstar and Wolfram Alpha. TTM = trailing 12 months.

3D Systems has seen more growth in its ratios than Stratasys. Let's look at a graph of these changes to get a better picture of the situation:

DDD P/E Ratio Chart

DDD P/E Ratio data by YCharts

At what point does this growth change from rational expectations to irrational exuberance? If you're invested in these stocks, I'd recommend keeping a close eye on each company's bottom line, as well as their ability to generate free cash flow, to make sure that a sudden shift in sentiment doesn't send your favorite multibaggers plunging. There have been many examples of former high-flyers crashing to earth over the past 12 months, and the last thing we want is for these 3-D printing superstars to join that woeful lineup.

What's next?
So far, there hasn't been any real cause for concern in 3D Systems' or Stratasys' earnings, so sentiment remains strongly in 3-D printing's corner. That's certainly the case for The Motley Fool's CAPS community, which has given 3D Systems a five-star rating. 96% of our CAPS players expect the company to pick them up lots more of that nice, green moon money. Do you agree with them? You may want to add 3D Systems to your Watchlist, for all the news we Fools can find, delivered to your inbox as it's published.

3D Systems has been a great under-the-radar success story for small investors, but a savvy growth investor stays on the lookout for new opportunities at all time. The Fool's here to help, with a brand-new free report on the "Three Middle-Class Millionaire-Makers Wall Street's too Rich to Notice." Everything you need to add a new multibagger is right here in this report, so click here for the free information you need now.

The article 3D Systems Takes a Rocket Ride to the Moon originally appeared on Fool.com.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights. Motley Fool newsletter services have recommended buying shares of Stratasys and 3D Systems. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


Increase your money and finance knowledge from home

Investor’s Toolbox

Improve your investing savvy with the right financial toolset.

View Course »

Managing your Portfolio

Keeping your portfolio and financial life fit!

View Course »

Add a Comment

*0 / 3000 Character Maximum

1 Comment

Filter by:
RED

Since the Q2 2011 earnings upside surprise, the net income hasn't really picked up, and in fact Q2 2012 eps vs Q2 2011 eps is way down. yet the stock has more than doubled in the past year. future 12 months earnings estimates are only $0.72 which is flat in line with earnings over the past 9 months, plus with the price of the systems falling drastically how will DDD expect to be able to keep ramping up earnings to support the ridiculous 70 P/E it currently sports? why is this stock a fundamental buy?

August 27 2012 at 8:06 AM Report abuse rate up rate down Reply