Weird Risks in Store for 3D Systems

As the largest manufacturer of 3-D printers, with the broadest portfolio of printers in the industry, 3D Systems (NYSE: DDD  ) is at the leading edge of a disruptive technological revolution. However, despite years of earnings growth, 3D Systems' share price has risen even faster, and today the company sports a sky-high 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 on whether 3D Systems is a buy right now. Today, you can get a sneak peek at our report, and read about some of the unusual risks that 3D Systems face, which it uniquely shares with peers like Stratasys.

Risks
3D Systems faces many of the same risks as any small, highly priced, high-growth company. Its industry is young, and a competitor with drastically superior technology could render 3D Systems obsolete, or at least force down its margins. Imitators violating the company's patents could lock 3D Systems out of markets with weak intellectual property protections like China. A bad or overpriced acquisition could eat into shareholder returns, or draw regulatory ire.

Even should things go well at the company, investors expect a lot. Revenue doubled between 2009 and 2011, while net income went from $1 million to $35 million. Accordingly, 3D Systems is priced at over 60 times current earnings; a dizzying valuation for any company.

As fits a company with its disruptive potential, however, 3D Systems also faces some risks that are, frankly, pretty weird, and difficult to predict or quantify. For instance, firearm enthusiasts have been keen recently to print a working gun out of commercially available, unregulated print materials. If a murder is committed with a gun manufactured by a 3D Systems printer, is the company liable for having sold the weapon without a background check? What sort of regulation could 3D Systems or its customers expect if 3-D printers can be used to produce weapons?

More broadly, how will regulators and producers react to the ability for consumers or companies to use 3-D printers to "pirate" the design of physical objects like clothing or electronics the same way that music and movies can be pirated today? If it becomes possible to simply download the schematics for an iPhone illegally online and print them at home, what is 3D Systems' obligation to protect Apple's intellectual property? In the name of copyright protections, could traditional manufacturers lobby to restrict the sale of 3-D printers to licensed manufacturers? These are questions that 3D Systems will face as the industry matures in scale and applicability, and investors must be prepared if these questions are not settled in 3D Systems' favor.


We hope you enjoyed this sample of our new premium research report on 3D Systems, which also includes a breakdown of the company's business structure, the most important areas investors need to watch, an analysis of the opportunities facing 3D Systems, and three key reasons to buy or sell the stock. To gain access to the complete report and a full year of analyst updates, click here and keep reading now.


Read/Post Comments (17) | Recommend This Article (6)

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 November 28, 2012, at 4:08 PM, veryst wrote:

    I bought on 42.3$.

  • Report this Comment On November 28, 2012, at 4:11 PM, lynmar79 wrote:

    One word....Fearmonger. As long as you guys get paid by the article we will continue to get fear/hype/hyperbole....when is enough, enough?

  • Report this Comment On November 28, 2012, at 4:14 PM, persinvst wrote:

    Come one Motley fool.... Once again, you're coming up with a new way of trashing a stock on you buy list. Unbelievable the stuff you guys come up with to help the shorts.

  • Report this Comment On November 28, 2012, at 5:20 PM, dion2727 wrote:

    Well Another House torturous, comment. How insane can you be.By your standards all lathe owners and mfgs.might be held culpable.To go to the ridiculous a hammer can be used for ill,and we can go on and on.What is the matter with you.GET A JOB AND GET A LIFE.What a miserable bunch of sick human beings.At my age of 85 I have a much better and brighter view of life and as a retired engineer I made many significant contributions .Go back to school and learn how to contribute,not how to destroy and look at the brighter side of life.

  • Report this Comment On November 28, 2012, at 5:36 PM, lynmar79 wrote:

    dion2727, well put, Sir.

  • Report this Comment On November 28, 2012, at 5:37 PM, pollution1 wrote:

    this is rediculous, you guys are short on ddd and now you losing alot and after another great day for ddd you guys put a negative article again to get it down, this is insane, 20 articles of the same stock over and over is enough

  • Report this Comment On November 28, 2012, at 5:48 PM, pollution1 wrote:

    and btw, this article is just a copy paste of another, i read like the excact same by another writer LOL, these guys are desperate...

  • Report this Comment On November 28, 2012, at 5:49 PM, pollution1 wrote:

    another write from another site i mean lol, what a joke, dont give us old news guys, you guys wrote to many about DDD now , it will only go up and you guys will lose, dont try to manipulate the stock ffs

  • Report this Comment On November 28, 2012, at 5:59 PM, xetn wrote:

    "what is 3D Systems' obligation to protect Apple's intellectual property"

    They have no obligation to protect Apple or any one else. That is the realm of the users and they will reap what they sow, if Apple pursues them.

  • Report this Comment On November 28, 2012, at 6:49 PM, lynmar79 wrote:

    Daniel, you are doing nothing to enhance the credibility of MF's...in fact, you're harming the brand.

  • Report this Comment On November 29, 2012, at 4:07 PM, TMFCatoMinor wrote:

    Hi all,

    Author here. Thought I'd clarify a few things.

    First, both the Motley Fool and I personally are actually LONG on 3D Systems, we're not shorting it. As you can see in the disclosure, DDD is an official Motley Fool recommendation, I own shares, and the Motley Fool also owns shares. The options that are disclosed are not bets against the company. My own options represent what I believe are reasonable floors to the company's current price. I collected income from selling those puts, and my options positions would be hurt if the stock price fell dramatically.

    The Motley Fool's options, I believe, are a straddle meant to protect against downside risk while capturing possible upside movement, but I can't speak for the analyst who made those calls.

    However, being long on a company does not mean ignoring the risks the company faces, or pretending there aren't any. Looking at the immediate, most realistic risks as well as the long-term and more difficult to imagine risks is an important part of being a long-term investor.

  • Report this Comment On November 29, 2012, at 4:17 PM, TMFCatoMinor wrote:

    Second, Dion, manufacturers of weapons ARE held culpable for how their products are sold. One cannot manufacture a firearm without a license. Even aiding, abetting, and assisting in the illegal manufacture of a firearm is a serious criminal offense punishable by up to 5 years in prison.

    The difference between a lathe and a 3D printer is certainly one of degrees, but if it becomes possible for ANYONE with a 3D printer to make a working firearm with readily available materials in minutes or hours, do you really expect there will be no government regulation of that activity? I don't.

  • Report this Comment On November 29, 2012, at 4:25 PM, TMFCatoMinor wrote:

    Third, xetn, that hasn't been the experience of the digital media industry. Platforms like Napster are not themselves illegal and do not necessarily infringe on intellectual property, but they get shut down anyway because they are used as tools to violate intellectual property.

    If regulators follow the example set by the Napster case, and hold the provider of the technology platform solely responsible to prevent IP infringements, that would impose a massive and probably crippling cost on 3D Systems. In Napster's case, the courts found Napster's anti-piracy effort, which stopped 99.4% of copyrighted material from being distributed, was not good enough. The company had to block 100% of IP infringements, and this onerous obligation lead to Napster's bankruptcy.

    Could 3D Systems' be a different story altogether? Sure. I certainly hope so. But it helps to be conscious of precedent when it comes to assessing a company's potential legal risk.

  • Report this Comment On November 29, 2012, at 5:21 PM, lynmar79 wrote:

    You're hyperbole takes you from A to Z, without going past B.....your piece is an embarrassment to the MF's brand.

  • Report this Comment On November 29, 2012, at 7:36 PM, TMFCatoMinor wrote:

    lynmar, I'm happy to respond to any substantive concern you have, or any factual error you believe I've made.

    This piece is a small excerpt from a larger report on DDD. As is standard when considering any investment, that report details some of the risks the company could potentially face and that's what's excerpted here. The rest of the report also discusses 3D's incredible market opportunity, its business structure, leadership, and key developments. But this segment just focuses on risks. That doesn't make it a take-down piece.

    I'm well aware that some of the risks I discuss seem "out there," but that should be expected because 3D Systems is doing something pretty unique. Any highly innovative company that disrupts business-as-usual will not only be creating new opportunities, it will also be creating new risks. Investors should keep that in mind when considering companies like this one.

    Again, if there's something specific you think I got wrong, I'm happy to discuss it.

  • Report this Comment On November 29, 2012, at 9:44 PM, lynmar79 wrote:

    Interesting that your article only included this part of the full picture:

    "This piece is a small excerpt from a larger report on DDD. As is standard when considering any investment, that report details some of the risks the company could potentially face and that's what's excerpted here. The rest of the report also discusses 3D's incredible market opportunity, its business structure, leadership, and key developments. But this segment just focuses on risks. That doesn't make it a take-down piece".

    You failed to examine the totality/opportunity of an investment in DDD for investors reading your piece, and only focused on fearmongering and hyperbole disecting this aspect of the total picture. And may I add, this aspect is based on no precedents in the industry. In my opinion, your piece was, and is, and embarrassment to the MF's brand....and with that you have something in common with your cohort, Adam Levy.

  • Report this Comment On June 16, 2013, at 10:48 AM, gooeylover wrote:

    I think folks need BOTH eyes open in buying any stock. It's good to know all the risks one can to make a good buying choice. I respect the authors insights and thank him for putting it here.

    Any fool can see big things coming from DDD, it's just good to be mindful of what to watch out for. ALL information is important when dealing with stocks of any kind. Be smart and look at the big picture.

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