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, detailing three critical areas for investors to watch.
- Industry Consolidation
The 3-D printing industry abounds with small service providers and open-source enthusiasts, but the major commercial business is now dominated by only two companies, 3D Systems and Stratasys. 3D Systems has consistently pursued many small acquisitions, particularly in the printing service industry. In January, 3D Systems completed one of its largest acquisitions, buying out privately held printer manufacturer Z Corporation.
Stratasys, long the No. 2 player after its founding only a few years after 3D Systems, announced in April that it intended to merge with the third-largest 3-D printer manufacturer, Israeli company Object Geometries. While this merger remains incomplete and could face regulatory hurdles, if successful, the joint entity would likely operate in a duopoly with 3D Systems.
Both companies have indicated that investors should expect continued consolidation. This presents opportunities, as a less-fragmented industry gives the major players better pricing power and a stronger hold on technological advancement in the field. At the same time, a policy of aggressive acquisitions presents the risk that 3D Systems could pay too much for a smaller rival, or that a rough integration could distract management and destroy shareholder value.
- Material Development
Print materials don't just provide 3D Systems' highest margins and most reliable revenue stream, they also serve as a critical differentiating factor between 3-D printer brands. With many outfits capable of producing 3-D printers, including non-profits and open-source organizations with no strong commercial interest, 3D Systems can set itself apart by offering printers that can utilize the broadest range of materials.
High-performance applications like aeronautics and supercomputing will require materials like carbon composites and semiconductors, not just any plastic resin. An expanding menu of printable materials will not only allow 3D Systems to maintain a competitive advantage, it will also allow for more and more uses for 3-D printing, creating a larger addressable market for 3D Systems' products.
For a very long-term investor, the most important thing to watch for 3D Systems is what people do with the technology. While plenty of applications exist for high-value, low-volume manufacturing today, 3-D printing has the potential to radically disrupt the established economic system in the 21st century in much the same way that the rise of the personal computer did in the 20th. There is a remote, but very real, possibility that in a few decades' time, 3-D printers will have replaced much of our existing industrial production system. As the technology comes into more and more hands, the only thing investors can expect is that users will find applications for 3-D printing that nobody could expect today.
We hope you enjoyed this sample of our new premium research report on 3D Systems, which also includes a breakdown of the company's risks and opportunities, the most important areas investors need to watch, 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.
Fool contributor Daniel Ferry has sold May 2013 $40.00 puts on 3D Systems and sold March 2013 $60.00 puts on Stratasys.The Motley Fool owns shares of 3D Systems and Stratasys and has options on 3D Systems. Motley Fool newsletter services recommend 3D Systems and Stratasys. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.