3D-Printing: Growth or Value?

3D-Printing: Growth or Value?

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The craze in 3D printing was anticipated well-before media began to pick up on how its technology could disrupt industries. Companies like 3D Systems (DDD) began to trade upwards since the start of 2012, when shares were $15, and peaked in the summer at $44.30. Stratasys Inc. (SSYS) began the year at $30, and is now trading at $60 with a Price of Profit (POP) of 53. Both companies dipped in recent trading sessions. Only Dassault Systemes SA (DASTY) is managing to hold at close to its 52-week high.

Value investors would be inclined to shy away from companies trading at such stratospheric levels. Growth investors buying into the 3D craze now are anticipating that the high POP will be supported by the same level of past growth in the foreseeable future.

Challenges do remain.

Like all new revolutionary technologies, 3D-printing will need to be adapted on a wider-scale, which would mean ever-increasing demand, which supports the high POPs of 3D-Printing companies. Investors wanting to forecast how 3D growth might play out should look at the supply-side growth of the smartphone industry. Organic LED maker Universal Display (PANL) shares traded as high as $55.04 in 2011, up from $6.03 in 2009 after its technology was adopted to smartphones:

 

 

Another example of subsiding growth is found in the LED sector, where Cree was in a sweet spot in 2010. The U.S. government moved to replace incandescent light with LED. China increased demand for the product. Municipal spending was strong in 2010, which supported higher share price. When demand dropped unexpectedly, shares fell rapidly:

 

 

Universal Display owns a number of patents for organic LED manufacturing. The company is receiving a steady stream of royalty payments from Samsung.

In the near-term, 3D Systems and Stratasys may face selling pressure, but investors should look for signs of dropping demand first.  If 3D is more disruptive than its expensive share price implies, and a drop in demand is only temporary, these companies would move up again. If the hype (and the demand) in 3D printing subsides, shares will decline to reflect a more reasonable long term growth rate and a lower valuation.

Business Section: Investing Ideas

Will 3D printing reach the masses? Here are some companies trading on the US exchanges that will benefit:

 

1. 3D Systems Corp. (DDD, Earnings, Analysts, Financials): Engages in the design, development, manufacture, marketing, and servicing of 3D printers and related products, print materials, and services. Market cap at $1.9B, most recent closing price at $34.27.

 

2. Stratasys Inc. (SSYS, Earnings, Analysts, Financials): Engages in the development, manufacture, and marketing of three dimensional (3D) printing, rapid prototyping (RP), and direct digital manufacturing (DDM) systems primarily in North America, Europe, and the Asia Pacific. Market cap at $1.29B, most recent closing price at $60.35.

 

3. Dassault Systemes SA (DASTY, Earnings, Analysts, Financials): Provides 3D and product lifecycle management solutions worldwide. The company offers SolidWorks software that provides 3D solutions for product design, analysis, and data management.

 

 

Here are the two companies that illustrate what happens when an expensive stock starts to sell off:

 

4. Universal Display Corp. (PANL, Earnings, Analysts, Financials): Engages in the research, development, and commercialization of organic light emitting diode (OLED) technologies and materials for use in flat panel display, solid-state lighting, and other product applications. Market cap at $1.58B, most recent closing price at $34.0.

 

5. Cree, Inc. (CREE, Earnings, Analysts, Financials): Develops and manufactures light emitting diode (LED) products, silicon carbide (SiC) and gallium nitride (GaN) material products, and power and radio frequency (RF) products. Market cap at $2.89B, most recent closing price at $24.91.

 

 

****Article image of 3D printed pieces purchased at MakerBot's new retail store in New York City.

 

Written by Chris Lau. To interact and discuss these picks with users, attach your watch list or portfolio to your friends on Kapitall. Message the author. He is ranked sixth (by points) on the all-time leaderboard. The leaderboard is located on your score icon -> Leaderboard.  Members on Kapitall earn free points, and even more points with every Kapitall Generation trade. These points may be redeemed for goods at the Kapitall store.

 

 

 

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11 Responses to “3D-Printing: Growth or Value?”

  1. joedel says:

    Those LED companies were generating growth via mostly government spending and through only one revenue stream. In adidtion to governmental entities, additive manufacturing companies are growing revenues and profits from private industries where profit for their clients is a motivating factor. These printers help companies cut costs and bring new products to market quicker. So when government spending might decline, private revenue growth will always be there.

    In addition, the 3D model also includes multiple areas of revenue streams including primary product sales, material revenues and associated repair and contract services.

    Many major manufacturers use some type of additive manufacturing, but new industries are beginning to find that additive manufacturing will benefit their product development and improve their bottom line. The medical industry is one such entity. Dentists and orthodontists are already producing dental products to perfectly fit patients mouths. Other industries within like hearing aids and prosthetics are producing items which can be fitted to exact patient specs.

    This sound NOTHING like LED manufacturing companies which only had one revenue stream based primarily on one market, with business conducive to the whims of governmental programs.

  2. Do you think these companies will grow towards mass market or towards a niche market (medicine, dentistry), or both?
    LED (Cree) was used to illustrate what happens when a niche product tries to grow towards the mainstream. LED for street lamps was growing everywhere. Few investors understood the importance of government support in fueling the demand. When government support dropped, Cree was (and is currently undergoing) a need to grow on the consumer segment side. They acquired Ruud to do so.

    LED was discussed because its the only model to go on in seeing what can go wrong, should 3D growth start to slow down.

  3. Harold Gardner says:

    Crazy new technology that is going to change the way a ton of stuff gets made. I suspect that it will develop along 2 prongs. Specialized high end that will become even more expensive, but much cheaper than current techniques. Inexpensive mass market for consumer use.

  4. Don says:

    I'd have to say a combination of both. Used properly, especially in the manufacturing sector, 3d scanning can increase the efficiency of churning out high value products, thus making the company grow.

  5. ortodonti says:

    Growth ! if you ask my opinion

  6. Mitch HC says:

    50% GROWTH, 50% VALUE. In my opinion, 3d printing is one of the most amazing innovations in the digital world today. Think about printing realistic depths that you've captured using those 3d scanners/white light scanners!

  7. In addition, the 3D model also includes multiple areas of revenue streams including primary product sales, material revenues and associated repair and contract services.

  8. The medical industry is one such entity. Dentists and orthodontists are already producing dental products to perfectly fit patients mouths

  9. Investors wanting to forecast how 3D growth might play out should look at the supply-side growth of the smartphone industry.

  10. Melissa says:

    If the hype (and the demand) in 3D printing subsides, shares will decline to reflect a more reasonable long term growth rate and a lower valuation. https://emaginedigital.com

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