The Best Investment in 3-D Printing

3-D printing has become all the rage among investors. Imagine the possibilities, imagine bringing manufacturing home from China, there will soon be a 3-D printer on everyone's desk, or so the story goes. Sometimes the market gets big eyes and draws conclusions before we even decide what technology will win or what is most important in the future of 3-D printing.

3D Systems (NYSE: DDD  ) , ExOne (NASDAQ: XONE  ) , and Stratasys (NASDAQ: SSYS  ) are fighting for market share but start-ups like MakerBot are close behind, ready to upend the established competitors. The question investors need to be asking is: What will be the one constant in the industry that we can count on in the long term?

A game of chance
Betting on the companies that make 3-D printers is a roll of the dice right now. 3D Systems' earnings today show just what a gamble it can be. Even a 45% increase in quarterly revenue didn't hit expectations, which sent shares tumbling. The reason is simple: Over the past year, the price/earnings multiple of 3-D printer makers has skyrocketed and they're now priced for perfection.  

DDD P/E Ratio TTM Chart

DDD P/E Ratio TTM data by YCharts

Even a small miss can be terrible for earnings, as we saw today. Both 3D Systems and Stratasys are priced for perfection and small misses like this exacerbate the problem for shareholders. ExOne went public without the benefit of being profitable and isn't growing as quickly as 3D Systems. The company brings even more risk to shareholders.

I think investing in the equipment maker space is risky at best and a bubble waiting to pop at worst. Long-term winners will emerge but the industry is far from mature; these companies don't yet deserve the valuations they've been given.

The key to the future
Where investors should really be watching is software. None of the 3-D technology works without the software to make a 3-D model. The best company to look at in this space is Autodesk (NASDAQ: ADSK  ) , the well-established maker of modeling software for a variety of industries. Autodesk makes a number of different software products for varying levels of skill. From Autodesk Inventor to AutoCAD to the new Autodesk 123D for 3D Systems, there's something for everyone. The company even makes free engineering software for iOS, making quick work of standard force and motion problems.

The big advantage for software over hardware makers is that the software can be used across multiple platforms. 3-D printing may make sense for a prototype for a product, but if you want to make 50 units, then a company like Proto Labs (NYSE: PRLB  ) may make more sense; it can use the exact same model used to make a 3-D printed product, making scaling a piece of cake.

CAD software is also very sticky. A designer is more likely to change the tools used to physically create a product than CAD software. Companies often define software with licenses while 3-D printing or molding tools are more open for change.

Foolish bottom line
The 3-D printing or rapid prototyping boom is certainly happening and investors should take notice. But I think 3D Systems, Stratasys, and ExOne are too expensive to jump into right now. They're all priced for perfection.

Autodesk is my top pick, simply because it has more staying power than others in the industry. If you're looking for a more manufacturing based play, then Proto Labs has the ability to rapidly prototype and has a software competitive advantage as well. But in both cases, it's all about the back end. A product can go from a designer's computer to a mold without a person touching it, creating its efficiencies and allowing for lower costs.

A deeper dive into 3D Systems
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 (5) | Recommend This Article (5)

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 February 25, 2013, at 4:27 PM, magilla101 wrote:

    your all asses make up your mind

  • Report this Comment On February 25, 2013, at 4:27 PM, JAVKO wrote:

    Does your arguement take into account the fact that you can buy 3D machines at a fraction of the price these Cos offer?

  • Report this Comment On February 25, 2013, at 9:28 PM, andrewupandabout wrote:

    @Javko

    I agree. How does DDD compete with so many 3d printer companies sprinning up with the free (Open Source) designs around the world. Yesterday it was Australian 3d printers, the day before from Israel, and the days and weeks before just about named every country in Europe building 3d printers.

    Andrew

    3D Printing YouTube Channel:

    https://www.youtube.com/user/andrewupandabout

  • Report this Comment On February 25, 2013, at 10:09 PM, ScottAtlanta wrote:

    @ magilla -- we're all fools, not asses! But thanks for the laugh...

    @Javco and Andrew -- people used to make computers with kits at home too. And they made cmplex programs to print out entertaining graphics (oooh look! A witch on green and white stripped paper....and it came out of that printer b/c of that computer!! Amazing!! )

    But only a few companies came to dominate. Is 3D one of the cos. now? Who knows but its got a huge head start (20 years of development), a portfolio of products via acquisition, and it's executing on Sales...NOW...not in someone's garage. Will a garage tinkerer innovate and patent and then surpass 3D? Perhaps....

  • Report this Comment On February 25, 2013, at 10:11 PM, ScottAtlanta wrote:

    My question...I should have asked vs. ranting....is why ADSK is better than DASTY?

Add your comment.

DocumentId: 2276529, ~/Articles/ArticleHandler.aspx, 7/31/2014 10:06:39 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement