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.
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Dig Deeper: Access Company Snapshots, Charts, Filings
- 3D Systems Corp. (DDD, Chart, Download SEC Filings)
- Stratasys Inc. (SSYS, Chart, Download SEC Filings)
- Dassault Systemes SA (DASTY, Chart, Download SEC Filings)
- Universal Display Corp. (PANL, Chart, Download SEC Filings)
- Cree, Inc. (CREE, Chart, Download SEC Filings)
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