How High Can 3D Systems Fly?

Shares of 3D Systems (NYSE: DDD  ) hit a 52-week high yesterday. Let's take a look at how the company got there to find out whether clear skies remain on the horizon.

How it got here
Consistent Fool readers (at least, consistent readers of Fool articles on 3-D printing) should know that I've been long-term bullish on 3-D printing for some time. That hasn't changed, but what has been changing over the past year is the market's awareness of this innovative technology.

What's also changing is the number of competitors in the space. It's shrinking, because 3D Systems and top rival Stratasys (Nasdaq: SSYS  ) are gobbling up smaller players and pushing the industry toward its inevitable consolidation. With both companies growing their revenue through acquisitions as well as organically, it should make plenty of sense why investors are getting more excited:

DDD Total Return Price Chart


DDD Total Return Price data by YCharts

3D Systems has actually had the better half-decade, gaining 215% to Stratasys' 94% over the last five years. As you can see from the chart above, it's also made larger gains on both the top and bottom lines, particularly since turning a profit at the start of 2010. Both companies have tacked near each other in P/E ratio since then, representing similarly bullish sentiments.

What you need to know
3-D printing is still very much a growth industry, as fellow Foolish 3-D printing enthusiast Brian Stoffel recently pointed out. Growth expectations lead to loftier valuations, which could be risky for investors if 3D Systems takes an unexpected turn for the worse.

Metric

3D Systems Result

Stratasys Result

Market Cap $1.6 billion $979 million
Current P/E 46.1 49.3
Forward P/E 28.5 29.5
Price to Book 6.1 5.2
Price to Sales 6.2 6.0
Price to Cash Flow 37.3 38.6
Net Margin 13.4% 12.1%

Source: Morningstar.

Neither company was immune to the last recession and could be hurt by this one as well. On the other hand, exiting another recession could bring a much larger bounce than it did before as more customers catch on to the appeal of building your own custom-shaped stuff on site. Most investors seem comfortable ignoring the high P/E and focusing on long-term growth potential.

A more concerted push for home users could hinder 3D Systems' growth, but the company's shown no sign of neglecting its valuable industrial clients. If anything, a long-term focus on consumers could make 3D Systems the stock to beat in this small sector. I've called 3-D printing one of the most important technology trends of the next five years, and I stand by that claim. Second place in five years would still offer a much greater market opportunity than market leadership now -- but 3D Systems doesn't look like it's playing for second place.

What's next?
Where does 3D Systems go from here? That will depend on how many more industrial clients come around to the benefits of 3-D printing, the outcome of the company's consumer push, and in the nearer term on how much the global economy gets hurt by any one of several potential catastrophes. The Motley Fool's CAPS community loves 3D Systems, giving the stock a rare five-star rating. A whopping 96% of CAPS players weighing in think the company will outperform, and I'm one of them. It's been one of my best-performing picks, and I'm holding it for the long term.

Interested in tracking this stock as it continues on its path? Add 3D Systems to your Watchlist now for all the news we Fools can find, delivered to your inbox as it happens. For a ton of great information on the 3-D printing industry's potential, take a look at the Fool's latest and greatest free report on 3D Systems, Stratasys, and one other crafty competitor in the race to build the "New Industrial Revolution."

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights. Motley Fool newsletter services have recommended buying shares of Stratasys and 3-D Systems. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (3) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 08, 2012, at 4:29 PM, catoismymotor wrote:

    I've been eyeing both companies for the last three months. If I were to buy DDD I think I'd be compelled to buy an equal amount of SSYS. I think both have tremendous growth potential and appear on paper to be competently managed. My biggest hang up has to do with the share price of each. Both are too rich for my blood right now. I like to think an opportunity to buy will present itself by late summer when I suspect the market will dip.

  • Report this Comment On June 08, 2012, at 4:55 PM, EnigmaDude wrote:

    Hmm, just looking at the chart I would be concerned with the flattening of the net income line as revenues have been growing. As a growth investor I would like to see a steeper curve to both the top and bottom lines. I agree with cato that both stocks seem a bit richly valued right now.

  • Report this Comment On June 08, 2012, at 5:55 PM, TempoAllegro wrote:

    Watching both companies and adding on dips is a good idea.

    At the moment I have a small position in SSYS. They have just merged with an Israeil company called Objet and I think the benefits of that merger have not become clear yet, nor priced into the SSYS stock.

    One other thing in favor of SSYS is a cooperation with HPQ. This should bear fruit eventually.

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