Is 3D Systems Great or What?

For every stock out there screaming "buy me," others simply give us a nudge and a nod. While their five-star peers might get all the attention, we can sift through Motley Fool CAPS to find four-star stocks giving us the "high sign" that they're on the path to greatness. 

These opportunities -- including familiar names and beaten-down companies -- rank higher than most of the other 5,400 starred companies, and it pays to investigate their potential. This time out we'll take a look at 3-D printing specialist 3D Systems (NYSE: DDD  ) , a less obvious source for tomorrow's great buys.

3D Systems Snapshot

Market Cap $2.2 billion
Revenues, TTM $289 million
1-Yr. Stock Return 148.3%
Return on Investment 7.4%
Dividend & Yield NA/NA
Recent Price $40.40
CAPS Rating (out of 5) ****

Source: FinViz.com.

Of course, just because the 180,000-member CAPS community has chosen this stock as one being on the road to greatness doesn't mean you should buy in too. Due diligence is still required, but let's see why they think it might merit your attention.

In the sight of greatness
There's a joke about 3-D printer companies that their longevity is limited by how soon the printers start printing out copies of themselves. Of course, with all the circuitry and moving parts, that wouldn't be possible, but it's remarkable that the technology is so advanced now that soon they'll be as ubiquitous as inkjet printers in the home.

3D Systems is poised to break through the $1,000 price barrier with its printers, a monumental achievement for the industry. It was at that price point that Hewlett-Packard (NYSE: HPQ  ) was able to acquire massive market share for its inkjets.

Following the same razor-and-blade business model, 3-D printers could attain the same level of ubiquity by virtually giving away the hardware and making their profits on the consumables. They might not become as disposable as inkjet printers are today -- it's almost cheaper to throw them away than pay the markup on the replacement cartridges -- but it does point a way for 3-D printers to consider greater growth.

Fit to print
In some respects, they already are. 3D Systems derives more revenue from the materials segment of its business than it does from printers (and it derives the most money from its services segment, which provides not only maintenance and warranty services, but on-demand parts printing, too). Industry rival Stratasys (Nasdaq: SSYS  ) doesn't break out consumables from its product revenue, but its services revenue is significantly less. However, it has supply agreements with Hewlett-Packard so that there is supply-chain stability.

Stratasys also targets the business market compared with 3D's consumer-oriented line, but HP offers up a consumer version -- though it's wildly expensive.

The printing industry is on the wane, though. HP saw a 13% drop in consumer revenues as unit sales tumbled 23%, while Lexmark (NYSE: LXK  ) saw a 17% decline in hardware revenues. Canon (NYSE: CAJ  ) also saw declines in laser-printer demand and in inkjets.

Consumables revenues are also falling, and HP's Meg Whitman has laid the blame for the decline partially at the feet of consumers who are simply printing less at home. We can probably thank the rise of mobile phones and cloud storage for the contraction, but 3-D printing would probably transcend that. Where traditional printing relies upon a 2-D image, so whether you view it on a piece of paper or a screen there is no difference, a 3-D print is meant to be held in your hand. In fact, you can't store it in the cloud.

Price is what you pay
Of course, there are risks to its growth, patent and copyright infringement not the least. I've speculated before about parents printing out their own Transformers toys, and one ambitious printer caused a stir recently when he printed out the receiver of an AR-15 (the military's popular M16). He ended up shooting 200 rounds with it, all for about $30 worth of materials.

Despite the risks, Investor's Business Daily says 3-D printing grew to $1.3 billion last year, and analysts expect it to expand 16% annually through 2020, right in line with the long-term growth rate they peg for 3D Systems.

Value is what you get
Yet the company isn't cheap. It trades at 71 times earnings and 30 times estimates, and even its enterprise value goes for 56 times its free cash flow. I've rated the 3-D printer to outperform the broad market indexes on CAPS -- and it's doubled in value since I rated it in January -- but I'd need it to pull back a good bit from its current highs before investing real money on the stock. I agree with CAPS All-Star EnigmaDude, who also finds the technology "gee whiz" exciting but in need of a serious haircut before getting in.

But tell me in the comments box below whether you agree there will be enough consumer demand for 3D Systems to continue printing out profits.

A great opportunity for you
Three-dimensional printing has the potential to completely rewrite its industry, and The Motley Fool has indentified the "3 Stocks to Own for the New Industrial Revolution." 3D Systems and Stratasys are two of them, and you can download a copy of the free report now to find out who the third company is that will change the way companies operate as we know it.

Fool contributor Rich Duprey holds no position in any company mentioned. Check out his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Stratasys and 3D Systems. We Fools don't 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. The Motley Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (12)

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 August 28, 2012, at 12:33 AM, spinindog wrote:

    I get a kick every time this stock pulls back a bit and think "some doofus out there sold because he doesn't think we'll print in 3D"

  • Report this Comment On August 28, 2012, at 2:34 AM, swedenclunk wrote:

    I thought the acquisitions were strange, a toy robot company, and a company printing phone cases. I would have thought these were customers, why spend money on buying them? If I was a company making similar products using DDD products, I would be puzzled.

  • Report this Comment On August 29, 2012, at 2:13 PM, ingr72 wrote:

    I've owned DDD for well over a year. I bought in after the stock split 2-1 and dropped down to the teens. I always liked their story and got very interested and started to screen the stock price as I like to buy into momentum, not just because they sound like they have a good story.

    Stock has been nothing short of terrific this year and I continued to buy more after the last earnings report... After watching the video on The Fool about the " 3 Stocks To Own For The Next Industrial Revolution " I decided to buy some SSYS ...DDD's competitor ... Anyone watching that video that doesn't come away with a positive attitude showed go back and watch it again... The Fool is a great web-site I am a BIG believer In the Gardner's ... The 2-D Revolution Has Only Just Begun ...

  • Report this Comment On August 29, 2012, at 9:58 PM, tyfoidhana wrote:

    The Future is Now! No need for warehousing . No need for shipping. Oh yeah and no manufacturing plant.Talk about cutting out the middle man or the man at all for that matter. These are the reasons I own this tech and keep buying it .

    The Future is Mine!

  • Report this Comment On September 04, 2012, at 6:52 PM, vitalbalance wrote:

    I bought 3D at $24, again at $27 and for a 3rd time a few more shares at $40. Now I am happily doing puts on this stock. Thank-you Fools.

  • Report this Comment On February 09, 2013, at 4:05 PM, Robworldwide wrote:

    Thanks for buying the puts. I've been happily selling them to you @vitalabalance

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