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3 Solid Reasons to Invest in 3D Systems!

July 23, 2014 | About:
Riddhi Kharkia

Riddhi Kharkia

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It is beyond doubt that 3D printing industry is a fast-growing one and as such, it has been experiencing comparatively higher volatility. The consumer 3D printing space is currently dominated by two behemoths i.e 3D systems (DDD) and Stratasys (SSYS). Both these companies have seen well-paced growth but on the back of different strategies. While, 3D systems has been an aggressive acquirer and built its product portfolio on the basis of these acquisitions, Stratasys has developed its portfolio with the help of heavy in-house research and development. A good number of analysts have criticized the aggressiveness of 3D systems’ acquisition strategy and held it responsible for weakening performance. However, it might be a bit early to write-off 3D systems and in this article, I will cite 3 reasons for you to stay upbeat on the stock.

A wide presence

As per a report from Wohlers the use of 3D printing also referred to as additive manufacturing, for final part production is growing in several diverse market segments. They include metal copings for dental crowns and bridges, orthopaedic implants, and jewellery. The aerospace industry is also an important market for the production of 3D-printed parts. Boeing uses additive manufacturing extensively to produce environmental control system ducting for directing the flow of air on military and commercial aircraft. Also, this report cites that the overall 3D printing industry will grow at a phenomenal 32% CAGR all the way till 2020 and the sales will hit $6 billion by 2017 itself. Hence, there is no second opinion about the fact that the potential of 3D printing is immense and since the space does not have a lot of players, a good share of this magnanimous pie can be easily devoured by 3D systems.

Now, 3D systems has often been criticized for its ferocious and unplanned acquisitions but I believe that these acquisitions will be a reason to celebrate in the long run. 3D printing industry is poised to gain in the long run but the areas which will generate this huge growth are still unclear. In its investor day presentation, the company highlighted medical and aerospace industries which will see a surge in demand for 3D printing. . According to MarketsandMarkets, "The stringent requirements such as light weight and accurate and precise design requirements for airplanes parts are the major driving factors behind the growth of 3D printing in the aerospace industry, over traditional manufacturing methods." Thus, the aerospace industry holds enough promise for 3D printing and could prove to be a clincher for 3D systems.

It may be true that 3D systems has been an overgenerous acquirer and taken over a good number of entities in a short span. On the flip side though, these acquisitions have positioned 3D systems to take leverage of the opportunities that can surface in any industry. Undeniably, 3D Systems has a breadth of materials ranging from plastics to metals. Plastics can be used in consumer-oriented printers, while metals can be used for manufacturing industrial-grade parts. Hence, 3D Systems is positioned to grow in either the case of wide adoption of the plastics or that of the metals for 3-D printing applications.

Super speed printers

3D Systems claims that its new fab-grade 3-D printer exceeds the productivity of traditional injection molding in direct manufacturing of functional parts. Speed was one of the two reasons (cost is the other reason) that 3-D printing was not successful against injection molding. In fact the current reports from media that Google has teamed up with 3D systems to ensure a continuous, high-speed 3D printing production platform and fulfilment system that will allow custom modules to be produced more simply for project Ara can be seen as a healthy indication of success in the area of super speed printers.

Reasonable valuation

The revised revenue guidance given by the company in its investor day presentation shows that it is expecting a stable growth in the coming quarters. 3D systems raised the revenue guidance by $15 million to be in the range of $695 million to $735 million. The company also expects its non-GAAP earnings to be in the range of $0.73 to $0.85 with greater earnings during the second half of 2014. Now, if we are to analyse company’s valuation, it is trading at approximately seven times its revenue (taking the high end of its guidance) while its closest competitor Stratasys has a multiple of 11x on revenue. Even though 3D systems is still overvalued but the anticipated growth in 3D printing markets can justify this valuation.

The essential reason behind recommending 3D systems is the wide presence that this company has built and enjoys. As a result of its wide array of products, it is well-positioned to take advantage of numerous opportunities in future.

About the author:

Riddhi Kharkia
A practicing Chartered Accountant based out of India. I have keen interest in analyzing tech stocks that are driven by value.

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Comments

bluehorseshoe
Bluehorseshoe - 3 months ago

I guess a day like today is one where you really regret writing this article. Just blatantly wrong this earnings season, stratasys outperforms and DDD takes a beating after their release. Go find more tech stocks to incorrectly analyze.

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