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Three Ways to Play 3D Printing
Daniel is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Science and sorcery
In the year 1770, technology took a fantastic leap forward. Hungarian Wolfgang von Kempelen invented and built an incredible machine that came to be known as “The Turk.” The machine consisted of a life-sized, mechanical human-like figure seated at a desk with a chessboard. A challenger would sit at the table and engage the robot in a game. To everyone’s amazement, the robot would respond with countering moves that sustained an entire game and often left the challengers defeated, including Benjamin Franklin and even Napoleon Bonaparte. It was a feat of mechanical mastery and as it was later revealed, trickery. The small space within the desk housed a real human controlling the arms of the torso. For nearly five decades most observers believed the box contained engineering that promised limitless capabilities.
Today it seems there is another mysterious box that has fascinated the public. This time, the box can generate tangible, three-dimensional objects from nothing. The magic of 3D printing is, however, very real and without artifice. Not unlike “The Turk,” people seem to have become entranced by the possibilities of this technology and what it can do for them and the world.
In the center of the center
Investors understand the value of 3D printing, because we can see it work before our eyes. Greater still, we can see the share price appreciation work even greater miracles to the tune of254% growth of 3D Systems (NYSE: DDD) in 2012 alone. The South Carolina based company offers solutions for nearly anything in the 3D printer world. The company, founded in 1986, manufactures and develops technology capable of rendering 3D goods. This includes the 3D printers themselves as well as the computer-aided designs (CAD) that function as digital blueprints for the machines. In short, the company is a major player and full service provider of 3D printing which puts them at the center of the center of the hottest topic in technology today.
Investors understand the value of 3D printing, because we can see it work before our eyes. Greater still, we can see the share price appreciation work even greater miracles to the tune of254% growth of 3D Systems (NYSE: DDD) in 2012 alone. The South Carolina based company offers solutions for nearly anything in the 3D printer world. The company, founded in 1986, manufactures and develops technology capable of rendering 3D goods. This includes the 3D printers themselves as well as the computer-aided designs (CAD) that function as digital blueprints for the machines. In short, the company is a major player and full service provider of 3D printing which puts them at the center of the center of the hottest topic in technology today.
Many investors are anxious to capitalize on what has largely been regarded as a nascent technology now coming into its own. The New Scientist has insisted that 3D printing “is about to transform every single aspect of our lives.” The promise of this newly affordable machinery has brought us to the, “middle of a second industrial revolution.” Business Insider literally believes 3D printing will extend past the stratosphere, claiming that Deep Space Industries, Inc. will, “help manufacture metal parts in space from pure asteroid.” Yet, any wise investor will feel obliged to bring their gaze down from the stars and to the balance sheets of 3D Systems to see where the prospects of an investment in the company will take them.
The relatively high P/E ratio of 49.8 compared to an industry average of 21.1 indicates that investors, much like various media outlets have been won over by the towering optimism of 3D printing. Yet, is this optimism warranted? Anyone looking at the 3-year and 5-year performance of 3D Systems would likely conclude that there is in fact plenty of reason to be optimistic. However, many of these reasons are based on past growth, which we know provides no guarantee of future performance.
Competitors
Others in the 3D printing realm like newcomer The ExOne Company and chief 3D Systems rival Stratasys (NASDAQ: SSYS) have experienced attractive growth fueled partially by their own designs and business models, but also, undoubtedly, by investors romanced with the headlines.
For any of these companies to truly deliver on the promises made in the media, they’ll need to find their way into the home and that prospect seems, for the moment, unlikely. Consider the speed at which these machines operate; many of the conventional models consist of a needlepoint moving on an X/Y axis while delivering small, individual drops of liquid plastic to build a design drip by drip. Bloomberg BuisnessWeek technology writer Ashlee Vance underscores this problem by elucidating the surprising dearth of R&D committed to these companies. She writes, “3D Systems spent just $14.3 million on research and development in 2011. That’s a paltry 6% of revenue. Its main rival Stratasys posted 2011 revenue of $155.9 million and spent $14.4 million on R&D.”
The value provided by all three companies is rooted in bigger industries that can realize prototypes faster or more readily visualize new engineering concepts. For the typical household the utility of such machines seems small, and while the novelty cannot be denied, it is also clear that bringing 3D printers to the consumer market will remain a challenge. Brooklyn-based MakerBot has experienced some success with bringing 3D printing to the home at an affordable price, but one must ask how many slick new custom iPhone cases one can print at home before the value of such a machine begins to look inflated.
Play the field
There is little question that the momentum behind 3D printing is real, however, the viability of the technology will most clearly be seen by other companies and not on Main Street USA. Diversifying a play in 3D printing among these three companies is the best option for investors eager to satiate their appetite for growth in new technology. Additionally, a savvy investor could also expand their exposure by targeting publicly traded companies that do not manufacture or sell 3D printers, but stand to actualize the value and improved efficiencies provided by the advent of such newly affordable machines. As a wise man once said, the way to wealth during a gold rush isn’t mining, it’s selling shovels. Some have speculated on the use of 3D printing for medical implants, prosthetics and even more fuel efficient planes and automobiles.
Imagine the competitive advantage provided to companies that previously had to rely on long, overseas shipping times to acquire incredibly specialized, custom parts for industrial machinery. Manufacturing.net, explains the value of such a new system, explaining that, “One of the best aspects of the process is that it eliminates lost time and costs associated with shipping parts globally. Parts can be created at a digital factory near the manufacturing facility when and where they are needed, eliminating the hassle of customs, duties and inspections. General shipping and transportation fees are minimized through the process. Additionally, additive manufacturing allows for real-time visibility to production and receipt of parts, further increasing time and cost savings for part and original equipment manufacturers.”
The tool of 3D printing is most powerful when applied to the correct industries. We need only remember that Kempelen’s “Turk” contained impressive ingenuity, even if it was a misguided attempt at affectation and mere novelty, but this is where 3D printing can differ; the true test of the technology will not be its value as a novelty, but rather its application, which has yet to be perfected.
3D Systems is at the leading edge of a disruptive technological revolution, with the broadest portfolio of 3-D printers in the industry. However, despite years of earnings growth, 3D Systems' share price has risen even faster, and today the company sports a dizzying valuation. To help investors decide whether the future of additive manufacturing is bright enough to justify the lofty price tag on the company's shares, The Motley Fool has compiled a premium research report onwhether 3D Systems is a buy right now. In our report, we take a close look at 3D Systems' opportunities, risks, and critical factors for growth. You'll also find reasons to buy or sell, and receive a full year of analyst updates with the report. To start reading, simply click here now for instant access.
The Death of the PC
The days of paying for costly software upgrades are numbered. The PC will soon be obsolete. And BusinessWeek reports 70% of Americans are already using the technology that will replace it. Merrill Lynch calls it "a $160 billion tsunami." Computing giants including IBM, Yahoo!, and Amazon are racing to be the first to cash in on this PC-killing revolution. Yet, a small group of little-known companies have a huge head start. Get the full details on these companies, and the technology that is destroying the PC, in a free video from The Motley Fool. Enter your email address below to view this stunning video.
The days of paying for costly software upgrades are numbered. The PC will soon be obsolete. And BusinessWeek reports 70% of Americans are already using the technology that will replace it. Merrill Lynch calls it "a $160 billion tsunami." Computing giants including IBM, Yahoo!, and Amazon are racing to be the first to cash in on this PC-killing revolution. Yet, a small group of little-known companies have a huge head start. Get the full details on these companies, and the technology that is destroying the PC, in a free video from The Motley Fool. Enter your email address below to view this stunning video.
Daniel Ellebrecht has no position in any stocks mentioned. The Motley Fool recommends 3D Systems and Stratasys. The Motley Fool owns shares of 3D Systems and Stratasys and has the following options: Short Jan 2014 $36 Calls on 3D Systems and Short Jan 2014 $20 Puts on 3D Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insightsmakes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!
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