A Winning Strategy for Stratasys

Wall Street can't generate enthusiasm for 3-D printing specialist Stratasys (NASDAQ: SSYS  ) , so why do our Motley Fool CAPS members disagree? Nearly 900 members of the investor-driven community have weighed in on its prospects, and 95% of them see it outperforming the broad market averages, bestowing on it high honors with a four-star rating. In contrast, more than a third of the 11 analysts rating it believe it will sink.

So who has it right? The professional class of analysts sitting in their paneled offices smoking stogies, or a motley community of investors pooling their best thoughts for others to share? We think we know who'll come out ahead. How about you?

Stratasys snapshot

Market Cap

$1.8 billion

Revenues, TTM

$188 million

1-Year Stock Return

132.7%

Return on Investment

9.3%

Estimated 5-Year EPS Growth

21.3%

Dividend and Yield

N/A

Recent Price

$84.32

CAPS Rating (out of 5)

****

Source: FinViz.com. N/A = not applicable; Stratasys doesn't pay a dividend.

Of course, as much as we love our CAPS community, don't buy a company just because its garnered top ratings. And don't sell it just because Wall Street says to either. Investing requires closer diligence on your part, so use a stock's CAPS rating as a launching pad for your own research.

A perfect storm
I've mused in the past that the 3-D printing industry will survive only to the point that the printers start printing out copies of themselves. While it's unlikely they'll ever be able to create a fully functional machine since they only spit out static pieces, RepRap, an open-source 3-D printer, seems to have come the closest, as it encourages users to print out parts to assemble other RepRap printers, which in turn has led to the rise of other open-source rivals Ultimaker and MakerBot, two other printers challenging the business models developed by Stratasys and 3D Systems (NYSE: DDD  ) .

But those printers come at a price: MakerBot offers two flavors, one for $2,799, the other for $2,199. That's expensive compared with the near-$1,000 price point 3D Systems' Cube goes for, and which could really bring 3-D printing to the masses.

Stormy seas
Yet Stratasys is different from its rivals as its printers are really geared for the enterprise level user, which has no time for Erector Set-style hobby machines. Its printers are used in aerospace, defense, automotive, medical, business and industrial equipment, and consumer products, with Boeing (NYSE: BA  ) , Intel (NASDAQ: INTC  ) , Ford (NYSE: F  ) , Xerox (NYSE: XRX  ) , and Nike (NYSE: NKE  ) all buying systems from Stratasys.

Revenues last quarter surged 24% to $49.7 million, aided by a 27% jump in system sales and a 13% increase in services, leading to an 8% rise in operating profits. Three-dimensional printing has reached a tipping point and has become almost mainstream. It creates broad awareness, even if the average person has little need for such a printer at the moment, driving prices down and creating a cycle of innovation. Office-supply leader Staples (NASDAQ: SPLS  ) recently announced that it will be offering 3-D printing services in-store.

While a company like Boeing has produced more than 20,000 3-D printed parts (as of last year) that it's delivered to military customers, the technology is going beyond even some futurists' wildest imaginations. If you think genetically modified foods created a firestorm of controversy, what would you think about 3-D printed meat? PayPal founder Peter Thiel is investing in Modern Meadow to develop a viable "bioprinting" company to create food for the masses.

Looking for safe harbor
Three-dimensional printing is expected to grow into a $3 billion industry by 2016 and could expand to more than $5 billion by 2020. Despite the rise of open-source rivals, Stratasys and 3D Systems will likely still be the major players, with others such as Dassault Systems (NASDAQOTH: DASTY  ) , Arcam (NASDAQOTH: AMAVF  ) , and even AutoDesk (NASDAQ: ADSK  ) helping to grow the industry.

Because of its concentration with enterprise-class clients, who will have greater and more sustained use for additive manufacturing than a mom who wants to print Legos for her kid, I see Stratasys as continuing on its upward trajectory, even if at current prices it's at nosebleed valuations. But let me know in the comments section below whether you agree that its ultimate success is still fit to print.

Nothing wrong with that!
3D Systems is at the leading edge of a disruptive technological revolution, with the broadest portfolio of 3-D printers in the industry. However, despite years of earnings growth, 3D Systems' share price has risen even faster, and today the company sports a dizzying 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. In our report, we take a close look at 3D Systems' opportunities, risks, and critical factors for growth. You'll also find reasons to buy or sell, and receive a full year of analyst updates with the report. To start reading, simply click here now for instant access.

 


Read/Post Comments (2) | Recommend This Article (4)

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 January 14, 2013, at 10:43 AM, GodEnriches wrote:

    As a long term investment, SSYS can't lose. The more interesting stock is ARCAM AB (AMAVF), which does 3D printing with titanium and electron beam. Disclosure - I own both.

  • Report this Comment On January 15, 2013, at 5:30 PM, ccaplinger wrote:

    GodEnriches, 3D Systems, Eos, and several other manufacturers also produce printers which print titanium. Arcam just calls it electron beam melting while the others call it selective laser melting or SLM. The big difference I see between these competitors is the valuation inflation and arcam isn't nearly as inflated as 3D Systems or Stratasys. Their site also specifies that they have about 80 worldwide installations which is enormously smaller than the number of units sold by competitors. For full disclosure, I work for 3D Systems.

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