3D Printing News Investors Need to Know: Citron Research
Jun 19th 2013 4:35PM
Updated Jun 19th 2013 4:36PM
In this installment of 3D Printing News Investors Should Know, we'll be looking at the recent research report put out by Citron Research. Earnings are approaching on Monday morning, and investors in 3D Systems Corp. have seen shares sell-off by 9% over the past week. This was most likely due to the negative sentiment building up after the release of the report. The real question for investors in 3D Systems, or any 3D printing company for that matter, is whether they should pay attention to reports such as Citron's. I think you should, and below, we'll look at what Citron had to say, if we agree, and what investors should really focus on.
The Citron Report -- should I care?
As an investor, I think it's very important to get outside of the cozy nook you call your comfort zone. There's no better way than to read an article or report that is contrary to your viewpoint. For investors in 3D printing, the Citron report is a great tool to make the skin crawl a bit. The report's primary purpose is to show how six areas -- management, media, analyst, Obama, ignorance of expert opinion, and acquisitions -- has created a bubble in 3D System's shares that is sure to burst.
The long and short of it is that the public has become disillusioned about the actual capabilities of the technology with regard to consumer printers. On that point, I do agree with Citron -- the public probably does have an inaccurate view of the time it will take this technology to achieve the grandiose visions held by the media.
The key word there is "public" -- if you're an investor in 3D Systems, Stratasys Ltd. , or The ExOne Company, then none of this information should come as a surprise to you. Investors should be perfectly aware of a potential bubble, and that this is an investment that will not play out in the next five years, but more like the next twenty. Hopefully, that investment is a responsible one of small size within the context of your portfolio, because betting the house on one company in an industry in such early stages would be ill-advised. While the report did raise commonly held concerns, there were a few cases I felt investors needed to dig into.
Problems with the report
While I did agree with the report's overall message that the valuation of 3D Systems is getting a little bubbalicious at a 12 trailing months earnings P/E of 83, I did take exceptions to the following -- The Motley Fool and printer comparison.
To address the first issue, it seems there has, unfortunately, been some confusion from investors on the official position of the Motley Fool in shares of 3D Systems; below is an expanded disclosure explaining the various positions we hold. There was also a quote from a research report taken out of context related to R&D and competitors. The quote in question is meant to show how it's cost prohibitive for competitors to develop professional-grade printers, and how 3D systems spends more on R&D in absolute dollars than any of its competitors. While this R&D spending is very low as a percentage of revenue compared to other industries, it's still the largest in 3D printing today.
The report also compared current printers of 3D Systems to models from previous years, and current competitor models. The previous comparisons were to show how the technology hasn't progressed, but you'd be missing the point if that's all you took away. The advancement hasn't been in necessarily superior tech, but in reduced cost of printers. 3D printers have dropped in cost dramatically over the past decade and continue to do so, which is opening it to new markets, driving adoption, and inspiring innovation.
The comparison on price point stated that the Cube is far overpriced. The comparisons were cheaper but, in my opinion, of far lower quality. One looked similar to a Rep Rap project built in someone's garage, and the other was similar, but in a spot-welded sheet metal enclosure. Hardly a compelling choice for the entry-level 3D printing customer who 3D Systems is targeting with the Cube. The competitors also lack the marketing muscle of Makerbot or 3D Systems.
The real issues
It's great to read information contrary to your opinion to combat that ever-growing confirmation bias that investors develop after owning shares for a long time, or after a large share price increase. So, in that case, the Citron report does a decent job of aligning near-term expectations for at-home printing. What investors should really be focusing on is a few key areas that will change the industry. These are: printing material developments, new print methods or improvements, software, and online design share ecosystems (cubify.com and thingiverse.com).
In closing, and ahead of Monday's earnings, I think what investors should really hope for is a strong pullback. This is a multi-decade long story that's yet to be told, and I'd like nothing more than to be able to participate at a more reasonable price.
3D Systems is at the leading edge of a disruptive technological revolution, with the broadest portfolio of 3-D printers in the industry. However, despite years of earnings growth, 3D Systems' share price has risen even faster, and today, the company sports a dizzying valuation. To help investors decide whether the future of additive manufacturing is bright enough to justify the lofty price tag on the company's shares, The Motley Fool has compiled a premium research report on whether 3D Systems is a buy right now. In our report, we take a close look at 3D Systems' opportunities, risks, and critical factors for growth. You'll also find reasons to buy or sell, and receive a full year of analyst updates with the report. To start reading, simply click here now for instant access.
The article 3D Printing News Investors Need to Know: Citron Research originally appeared on Fool.com.Editor's note: To clarify the disclosure position outlined below, The Motley Fool owns shares of 3D Systems through both our Supernova and Pro real-money premium services. In addition to the shares it owns, our Pro premium service has written a "covered strangle" options position on 3D Systems, agreeing when the trade was set up to buy more shares at a lower price, or to sell existing shares at a higher price - while maintaining the ability to close either obligation any time. Finally, 3D Systems is a recommendation in Stock Advisor , which is not a real-money service. Blake Bos 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.