Is 3D Systems Great or What?
Aug 27th 2012 8:12PM
Updated Aug 27th 2012 8:16PM
For every stock out there screaming "buy me," others simply give us a nudge and a nod. While their five-star peers might get all the attention, we can sift through Motley Fool CAPS to find four-star stocks giving us the "high sign" that they're on the path to greatness.
These opportunities -- including familiar names and beaten-down companies -- rank higher than most of the other 5,400 starred companies, and it pays to investigate their potential. This time out we'll take a look at 3-D printing specialist 3D Systems (NYS: DDD) , a less obvious source for tomorrow's great buys.
3D Systems Snapshot
|Market Cap||$2.2 billion|
|Revenues, TTM||$289 million|
|1-Yr. Stock Return||148.3%|
|Return on Investment||7.4%|
|Dividend & Yield||NA/NA|
|CAPS Rating (out of 5)||****|
Of course, just because the 180,000-member CAPS community has chosen this stock as one being on the road to greatness doesn't mean you should buy in too. Due diligence is still required, but let's see why they think it might merit your attention.
In the sight of greatness
There's a joke about 3-D printer companies that their longevity is limited by how soon the printers start printing out copies of themselves. Of course, with all the circuitry and moving parts, that wouldn't be possible, but it's remarkable that the technology is so advanced now that soon they'll be as ubiquitous as inkjet printers in the home.
3D Systems is poised to break through the $1,000 price barrier with its printers, a monumental achievement for the industry. It was at that price point that Hewlett-Packard (NYS: HPQ) was able to acquire massive market share for its inkjets.
Following the same razor-and-blade business model, 3-D printers could attain the same level of ubiquity by virtually giving away the hardware and making their profits on the consumables. They might not become as disposable as inkjet printers are today -- it's almost cheaper to throw them away than pay the markup on the replacement cartridges -- but it does point a way for 3-D printers to consider greater growth.
Fit to print
In some respects, they already are. 3D Systems derives more revenue from the materials segment of its business than it does from printers (and it derives the most money from its services segment, which provides not only maintenance and warranty services, but on-demand parts printing, too). Industry rival Stratasys (NAS: SSYS) doesn't break out consumables from its product revenue, but its services revenue is significantly less. However, it has supply agreements with Hewlett-Packard so that there is supply-chain stability.
Stratasys also targets the business market compared with 3D's consumer-oriented line, but HP offers up a consumer version -- though it's wildly expensive.
The printing industry is on the wane, though. HP saw a 13% drop in consumer revenues as unit sales tumbled 23%, while Lexmark (NYS: LXK) saw a 17% decline in hardware revenues. Canon (NYS: CAJ) also saw declines in laser-printer demand and in inkjets.
Consumables revenues are also falling, and HP's Meg Whitman has laid the blame for the decline partially at the feet of consumers who are simply printing less at home. We can probably thank the rise of mobile phones and cloud storage for the contraction, but 3-D printing would probably transcend that. Where traditional printing relies upon a 2-D image, so whether you view it on a piece of paper or a screen there is no difference, a 3-D print is meant to be held in your hand. In fact, you can't store it in the cloud.
Price is what you pay
Of course, there are risks to its growth, patent and copyright infringement not the least. I've speculated before about parents printing out their own Transformers toys, and one ambitious printer caused a stir recently when he printed out the receiver of an AR-15 (the military's popular M16). He ended up shooting 200 rounds with it, all for about $30 worth of materials.
Despite the risks, Investor's Business Daily says 3-D printing grew to $1.3 billion last year, and analysts expect it to expand 16% annually through 2020, right in line with the long-term growth rate they peg for 3D Systems.
Value is what you get
Yet the company isn't cheap. It trades at 71 times earnings and 30 times estimates, and even its enterprise value goes for 56 times its free cash flow. I've rated the 3-D printer to outperform the broad market indexes on CAPS -- and it's doubled in value since I rated it in January -- but I'd need it to pull back a good bit from its current highs before investing real money on the stock. I agree with CAPS All-Star EnigmaDude, who also finds the technology "gee whiz" exciting but in need of a serious haircut before getting in.
But tell me in the comments box below whether you agree there will be enough consumer demand for 3D Systems to continue printing out profits.
A great opportunity for you
Three-dimensional printing has the potential to completely rewrite its industry, and The Motley Fool has indentified the "3 Stocks to Own for the New Industrial Revolution." 3D Systems and Stratasys are two of them, and you can download a copy of the free report now to find out who the third company is that will change the way companies operate as we know it.
The article Is 3D Systems Great or What? originally appeared on Fool.com.Fool contributor Rich Duprey holds no position in any company mentioned. Check out his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Stratasys and 3D Systems. We Fools don't 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. The Motley Fool has a disclosure policy.
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