In this context, I would like to take a look at 3D Systems Corporation (NYSE:DDD), a leading provider of 3D printing systems and 3D content-to-print solutions. Holding annual EPS growth rate projections (24%-26%) that comfortably surpass its peers’ (12%-16%), this stock certainly looks like an attractive investment option for the long-term –although many are making good money with 3D printing short plays.
However, one must look beyond growth projections in order to pick a good investment. Hence, let’s analyze briefly 3D Systems’ growth catalysts, prospects and valuation:
Print Me a New Brain, Because Mine Is Blown Away
3D Systems’ CEO Avi Reichental recently said that “his company is 50% technology, 20% innovation and 30% awesomeness,” and this is not as imprecise or exaggerated as it sounds. If you have never seen how 3D printer works….Its mind-blowing! With a simple render, you can print virtually anything, from toys to guns, and even human organs. Check out this video that will introduce you to the future:
The company holds the broadest portfolio of 3D printers (to cater both professional and everyday needs) in an industry that is expected to be one of the most disruptive of the next decade. In addition, these machines work with proprietary materials, so a continuous income is, to some extent, ensured when a printer is sold. Moreover, the materials’ gross margins of roughly 20% make -and will continue to make- a sizable contribution to the company’s total profit. This also helps 3D Systems to maintain net and operating margins (of 9.5% and 17.6%, respectively) well above its industry’s average.
General Electric (NYSE:GE) announced the use of 3D printing to make more than 85,000 fuel nozzles for its new Leap jet engine. As the market leader, 3D Systems stands a privileged position to benefit from this. Furthermore, its relations with GE are already quite profitable. Nonetheless, competition from other manufacturers like Stratasys (NASDAQ:SSYS), which also provides for GE, will not be negligible.
Meanwhile, 3D Systems remains innovative. A week ago, the company presented six new printers at the Euromold 2013 –the most important trade show for the 3D printing industry. Last Monday, the company also publicized the availability of its new ProJet 4500 3D printer, the first full-color and continuous-tone 3D printer available at the market.
On Wednesday, 3D Systems also announced the acquisition of Figulo Corporation, the industry's only production grade 3D printing ceramics company. However, the management didn’t disclose the sum of the transaction.
Despite the growth prospects that 3D Systems faces, its valuation at 120 times its earnings seems excessive. Even its forward P/E ratio surpasses 60x. This reflects the investors’ confidence and expectations in a larger measure than it reflects the real (current) situation of the company. However, when compared with its peers, the company does not look as bad. It’s just a matter of waiting for a good entry point.
Jim Simons and John Griffin started new positions in the firm over 2013’s third quarter. However, they paid $44-$56 per share. Since the acquisitions, they have already perceived an upside of more than 50%. Now, all that’s left to do is wait, until the price drops enough for it to be a value investment. Until that moment, I would restrain from trailing these investment gurus, who saw the chance before the stock price rocketed.
Disclosure: Damian Illia holds no position in any stocks mentioned.