3D Systems Corp. (NYSE:DDD) is a leading provider of 3D printing. The company manufactures equipment and provides manufacturing, modeling, scan-based design and rapid prototyping solutions to clients, and is currently one of the largest companies in the industry. Reducing time and cost of designing products and manufacturing, 3D printing creates parts directly from digital input, replacing traditional methods. Its products suit different consumers, allowing printers to design, create, communicate and produce real parts, doing on-demand custom parts for professionals and consumers alike in materials that range from plastics to edibles.
3D Systems combines proprietary materials and differentiated printer units, allowing it to sustain production and growth despite the market’s volatility. Its product portfolio is one of the largest in the industry, meeting diverse market needs, from top-end production printers to low price machines. This type of technology is rapidly increasing its popularity given that it facilitates vastly the design-production of different real parts. Therefore, the greater exposure is likely to benefit the company, boosting sales, and moreover will induce technological innovations and shifts in the market, bringing as well new competitors certainly.
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3D Printers such as the ProJet 3D printer series, or the ZPrinter series rely on consumable materials, such as plastics, metals, ceramics and edibles to create final products. In fact, the consumable materials generate higher gross margins than actual printers, contributing to overall profitability in the business. This company works with large 3D printing services and sells printers as well, but has an on-demand custom part business, which generates around 30% of total revenue and caters different consumer types. Nevertheless, this is a rather new industry and proliferation of printers and lower unit costs have lowered the barriers to entry. Moreover, the fact that the company’s growth is basically a result of increased demand on 3D printing services, analysts are thinking weather long term profitability will endure This industry is subjected to rapidly changing product cycles introducing uncertainty regarding projected revenue and growth rates. Still, developing a competitive product isn’t that easy and 3D Systems Corp. (NYSE:DDD) is likely to keep leading the industry. Moreover, the launch of the Cube 3D in early 2012 had good market success, establishing innovative solutions while pushing the consumer price point further south in a ready-made 3-D printing solution.
The firm has recently announced the acquisition of Medical Modeling, Inc. a provider of personalized surgical treatments and patient specific medical devices, including virtual surgical planning and clinical transfer tools, using 3D modeling and printing. This addition is expected to create the largest 3D printing personalized surgery and medical service and product capability in the market and impact net income.
The medical company is pioneer on the 3D printing medical services’ field, and with FDA-cleared manufacturing processes and world-class expertise. 3D Systems announced it plans to consolidate its healthcare activities into a single unit under the leadership of former Medical Modeling President, Andy Christensen. "We are thrilled to become part of 3DS," said Christensen. "We already use most of 3DS' leading professional design-to-manufacturing tools including its Geomagic(R) Freeform(R)modeling software and haptic tools and advanced manufacturing Stereolithography and ColorJet Printing professional-grade 3D printers." Avi Reichental, 3D Systems President and CEO said: "By leveraging our collective expertise, technologies and channels under the capable leadership of Andy Christensen, we plan to deliver an expanding range of direct metal and plastic medical devices designed to address this rapidly expanding opportunity."
This industry and additive manufacturing have been boosting recently and getting a lot of publicity, and 3DS as one of the leading companies in the market has been profiting from this increase in demand and expansion. Nevertheless, 3D printing services are subjected to consumers’ trends, and dependent on overall macroeconomic instability. Moreover, entering barriers are being lowered by market’s expansion, and the chances of new competitors deterring profitability are increasing. Still, 3D Systems' portfolio is broad, and allows the company to maintain its presence and reach different type of demands, staying on top of current industry trends.
Analysts think this company’s valuation is being influenced by good and bad publicity; current P/E is 129.9 points, while industry’s average is 16.9. Given the fact that its success is recent, the cash used to pursue the latest acquisitions might present several integration risks and potential margin dilution. Moreover, although its broad portfolio allows a strong position among the market, the firm might have a hard time adapting to faster growing products and too rigid in the slower-growing segments. Therefore, analysts are feeling bearish on this stock, and suggesting a closer look at financials.
Disclosure: Damian Illia holds no position in any of the stocks mentioned.