A Simple Example of the Disruption 3-D Printing Could Cause

Growing up, my next-door neighbor was an Italian immigrant named Jack, who went on to found his own line of frozen pizza. Over the years, his products have gained popularity and spread throughout the upper Midwest.

When it got to the point where forklifts were needed to manage the company's inventory, my dad -- a forklift distributor -- pitched his company's line of products to Jack's son, who was in charge of such things. "Thanks, but we try to make sure all of the tools and ingredients we use come from our native Italy," was the response.

"Fair enough," my dad thought. But he also knew that buying a European forklift meant that if certain parts needed to be replaced, it could take weeks, if not months, for the requisite tools to make it back to the states.

Sure enough, a few years later, my dad got a call. It turned out the pizza company's forklift had been down for almost two months, waiting for replacement parts to arrive. Jack's son decided to make an exception to the company rule, and it turned out to be a win-win for my dad and our neighbor.

Ultimate personalization
Unfortunately for my dad, that kind of advantage -- having the parts on hand to help customers while foreign competitors are thousands of miles away -- may not be around for long.

I've detailed what 3-D printing actually is before, but in a nutshell, it's a process whereby a machine can make a three-dimensional object that is functional for everyday life. A 3-D printer simply needs the specs for a product and the necessary materials (think metal, silicon, or rubber, for example), and a few hours later -- presto! You have what you need.

Jay Leno famously used a 3-D printer for a rare part he needed for one of his vintage motorcycles. In the not-so-distant future, my neighbor's pizza company may be able to use a 3-D printer to make replacement parts and only have to wait hours -- not months -- for its forklift to be up and running again.

You can count dentistry as another industry already being disrupted by this technology, as patients only have to wait a few days (rather than weeks) to get custom-fit parts for their dental needs.

It's pretty clear how everything from an industry based on spare parts to mass manufacturing could be disrupted by this versatile technology. Instead of going out and getting cookie-cutter products, you can tailor your purchases to fit your individual needs.

It's also pretty clear that for investors who want to take part in 3-D printing's potential, there are big opportunities. Currently, two stalwarts are splitting the market: 3D Systems (NYSE: DDD  ) and Stratasys (Nasdaq: SSYS  ) .

A look at how the companies have performed over the past year might make you think that you've missed the boat if you aren't already invested.

SSYS Chart

SSYS data by YCharts.

But I still think there are solid arguments to be made for continued adoption of the technology. Consider the fact that over the first six months of 2012, Stratasys showed 30% growth in revenue and 23% growth in earnings. Not to be outdone, 3D Systems grew revenue by 57% and earnings per share by 46%.

While each company is trading for lofty valuations -- both have P/Es of about 70 -- there's another crucial number to keep your eye on: market capitalization. I'll be the first to admit that both of these companies look expensive right now, but with market caps less than $3 billion, there's still plenty of room to grow over the next decade.

Consider that some of the world's largest manufacturing companies, like 3M (NYSE: MMM  ) and Siemens (NYSE: SI  ) , have market caps ranging from 30 to 45 times larger than these two 3-D printing companies. By no means am I saying that Stratasys or 3D Systems will grow to replace 3M or Siemens -- only that the disparity in value gives you an idea of how small these two printing companies are at this point.

Which to choose...
You really can't go wrong with either company, but when forced to choose, I have sided with Stratasys. This is largely due to the company's historical focus on organic growth and catering to large-ticket customers -- though it has recently branched out with lower-end printers as well.

The main concern that made me shy away from 3D Systems is that the company has grown via acquisition. It was twist, then, when Stratasys announced that it was merging with Israel-based Objet this past April. For what it's worth, I think it was an excellent move for Stratasys, as it helps the company expand its reach with complementary technologies in varied fields.

To be honest, though, these aren't the only two companies that could capitalize on the 3-D printing revolution. Our top analysts have prepared a special free report to tell you more: "3 Stocks To Own for The New Industrial Revolution." I've already covered two of those companies here, but to find out what the third one is, get your copy of the report today -- absolutely free!

Fool contributor Brian Stoffel owns shares of Stratasys. Motley Fool newsletter services have recommended buying shares of Stratasys, 3M, and 3-D Systems, and creating a diagonal call position in 3M. 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 (6) | Recommend This Article (24)

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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 28, 2012, at 7:07 PM, Paythebills wrote:

    In a world where just in time delivery is the rule for every large, competitive manufacturer, who is dependent on parts needed for the assembly line to arrive as needed...not early or late. 3D printers are the answer they need to keep assembly lines on schedule. They dont want to inventory spare parts.

  • Report this Comment On August 29, 2012, at 10:46 AM, 3drp wrote:

    In certain "niche applications" this may be true, but in overall manufacturing, 3D printing has its place only as a prototype model builder - its purpose for the last 20+ years.

    When you 3D print a part, which ends up costing between $50 and $1,000 to make and takes 3 hours, it can not suppliment production of a part which takes 2 minutes at a cost of $0.25 in the real material which is required. This is the general reality.

    Even in most cases where the 3D printer manufacturers show an application, it is only due to a engineers failure to understand what other processes exist.

    The 3D printer industry has done a good job of making people believe other prototype manufacturing processes take a long time, when the reality is that they don't.

  • Report this Comment On August 31, 2012, at 1:08 PM, cacudi wrote:

    I really do not understand how 3D printing could produce really working mechanical parts, for example a spare for a truck engine, although I keep reading that this is the case. Real parts after molding get special finishing to tolerance, and above all undergo complex thermal and chemical hardening to be fit for the job. And lets forget things like jet fan blades that are even made monochrystalline for best resistance - that will never be of course. Does anyone have an answer? It all sounds just like a lot of hype to me.

  • Report this Comment On August 31, 2012, at 6:56 PM, Firsk wrote:

    It's unlikely to be used in the near term for mass market products, due to speed and cost. As 3drp above comments, it's not remotely competitive with conventionally manufactured parts if there is any real volume. The range of materials at present is fairly limited. The technology is improving, and will be able to provide high strength parts in a wider rage of materials as time goes on. Since these are additive processes, there are things that can be done with design that are not possible using subtractive processes or molding. http://www.tms.org/pubs/journals/jom/9812/das-9812.html

    Shows one fairly out there (not yet commercial) process, laser sintering titanium missile parts.

    For those of us in small volume or prototype production, 3D printing processes are common, and it is remarkable how much better and cheaper they have become. But other rapid prototyping/ manufacturing processes are also becoming much better and more accessible. We can design a highly complex circuit board, send off a file, and get back a finished device in days. CNC machining houses can make highly sophisticated parts out of almost anything.

    In my mind, the bigger story is the overall democratization of manufacturing and design, of which 3D printing is only a part. Things that would have taken a large company to produce a few years back can now be created by one or two competent designers. My own business has been on the bleeding edge of this trend; instrumentation products we designed and prototyped and licensed are now being sold globally and competing head to head with far larger companies. I think most of those companies would be shocked to learn we are only two designers.

  • Report this Comment On August 31, 2012, at 9:42 PM, MIstock wrote:

    One thing the article failed to mention is the applicaton of 3-D printers in the medical field.

    http://www.bbc.com/future/story/20120621-printing-a-human-ki...

    If this technology pans out I would expect 3-D printers to become common place at every hospital. Definately, stocks and research to keep an eye on.

  • Report this Comment On September 02, 2012, at 12:07 AM, mortron wrote:

    Many have stated that 3d printers are where desktop computers were in 1976.

    If this is the case - that every house hold will have a 3d printer on their desktop, then the real play will be in designing and selling software in the form of CAD apps/3d design software that anyone can purchase online and download directly to their 3d printer to create what ever part or utensil they need.

    Very exiting concept.

    Mortron

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