3D Systems Takes a Rocket Ride to the Moon

From The Simpsons episode "The Twisted World of Marge Simpson":

Royce McCutcheon: That's the miracle of the franchise… You'll be on a rocket ride to the moon! And while you're there, would you pick up some of that nice, green moon money for me, Royce McCutcheon?

Homer: No deal, McCutcheon! That moon money is mine!           

Shares of 3D Systems (NYSE: DDD  ) hit a fresh all-time high yesterday. Let's take a look at how it got here to find out whether there are still clear skies ahead.

How it got here
For a little while, it seemed like 3D Systems' meteoric run was about to end after its second-quarter earnings appeared to disappoint investors. Despite rapidly growing revenues, the Street had been expecting more, so shares fell for a day before recovering to rise again. Rival Stratasys (Nasdaq: SSYS  ) had a more favorably received quarterly report soon after, and the wind has been very firmly in both companies' sails in the days since.

Both stocks have been among the absolute best performers on the market over the past 52 weeks, and they have certainly been minting that nice, green moon money for shareholders:

DDD Total Return Price Chart

DDD Total Return Price data by YCharts

How far can these two stocks grow? Let's take a look at some key numbers to see where they stand relative to some historical averages.

What you need to know
There's no doubt that these two stocks have gotten a lot of market love, but it's important to consider how much their valuation ratios have grown. A stock that's running away from its historical norms might be one at risk of correction, and both of these stocks are now well above their average valuations for the post-recession period:

Metric

3D Systems Result

Stratasys Result

Market Cap $2.2 billion $1.4 billion
Net Margin (TTM) 10.3% 12.1%
Free Cash Flow (TTM) $39 million $9 million
Current P/E 67.3 70.4
2-Year Average P/E 36.2 58.0
Difference from Average P/E 85.9% higher 21.4% higher
Current Price to Free Cash Flow 73.9 67.9
2-Year Average P/FCF 36.9 36.4
Difference from Average P/FCF 100.3% higher 86.5% higher

Source: Morningstar and Wolfram Alpha. TTM = trailing 12 months.

3D Systems has seen more growth in its ratios than Stratasys. Let's look at a graph of these changes to get a better picture of the situation:

DDD P/E Ratio Chart

DDD P/E Ratio data by YCharts

At what point does this growth change from rational expectations to irrational exuberance? If you're invested in these stocks, I'd recommend keeping a close eye on each company's bottom line, as well as their ability to generate free cash flow, to make sure that a sudden shift in sentiment doesn't send your favorite multibaggers plunging. There have been many examples of former high-flyers crashing to earth over the past 12 months, and the last thing we want is for these 3-D printing superstars to join that woeful lineup.

What's next?
So far, there hasn't been any real cause for concern in 3D Systems' or Stratasys' earnings, so sentiment remains strongly in 3-D printing's corner. That's certainly the case for The Motley Fool's CAPS community, which has given 3D Systems a five-star rating. 96% of our CAPS players expect the company to pick them up lots more of that nice, green moon money. Do you agree with them? You may want to add 3D Systems to your Watchlist, for all the news we Fools can find, delivered to your inbox as it's published.

3D Systems has been a great under-the-radar success story for small investors, but a savvy growth investor stays on the lookout for new opportunities at all time. The Fool's here to help, with a brand-new free report on the "Three Middle-Class Millionaire-Makers Wall Street's too Rich to Notice." Everything you need to add a new multibagger is right here in this report, so click here for the free information you need now.

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 3D 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.


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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 August 09, 2012, at 1:29 PM, zoopsia63 wrote:

    I totally agree as to DDD and SSYS, and I have been gradually raising my stop loss on each, having in mind a likely correction.

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