Why I Finally Added 3D Systems to My Portfolio

Last week, I finally decided to purchase my first shares of additive manufacturing specialist 3D Systems (NYSE: DDD  )  for my personal portfolio.

It certainly wasn't a hasty decision; I've kept the company in my sights for the better part of the last two years, and even initiated an outperform CAPScall on the stock last September.

While that call has outperformed the broader market by more than 12% so far, those of you who've kept track probably know 3D Systems has taken investors on one heck of a ride since then:

DDD Chart

DDD data by YCharts

So why did I finally take the plunge? It surely wasn't the valuation, especially considering 3D Systems was trading around 70 times trailing earnings even after falling more than 30% from the 52-week-high it had set less than three months ago. Though that pullback admittedly made my decision a little easier, it merely brought the price down from "absurd" to something closer to "terribly expensive." Still, the stock looks much more palatable now that shares are trading at a much more respectable 24 times forward earnings estimates.

This, in part, highlights the fact that the real allure of 3D Systems lies in its future ability to play a central role in redefining manufacturing as we know it. Even so, many prospective investors remain skeptical as truly wide-scale adoption currently seems out of reach given 3-D printing's relatively limited consumer utility.

On one hand, I suppose you can't blame them, since many 3-D printed products find their place behind the scenes in niche markets like medical implants and custom parts for motorcycles, cars, and the aerospace industry.

To be sure, 3D Systems is one of only a few companies beginning to place significantly more focus on the consumer market with its Cube line of desktop printers. However, the devices are limited to using just two types of plastic printing materials, and they've only recently graduated to printing in up to three colors:

 

3D Systems' CubeX Trio personal printer. Source: 3D Systems

Baby steps in 3-D printing
Big whoop, right? It's nice to see a change from the same old monochrome trinkets, but why should anyone be excited about a gimmicky hobbyist printer which starts at around $1,300 and can only let us make trinkets?

To answer that question, remember what our fellow Fool Isaac Pino reminded us a few weeks ago: high-end production 3-D printers from companies like 3D Systems, Stratasys (NASDAQ: SSYS  ) , and ExOne (NASDAQ: XONE  ) are capable of using dozens of materials to print infinitely more complicated items including shoes, saws, guitar bodies, and other functioning tools with moving parts. Heck, 3-D bioprinting specialist Organovo (NYSEMKT: ONVO  ) is currently working feverishly on perfecting the process of designing and creating functional human tissue which -- putting inevitable regulatory hurdles for using the technology aside -- could obviously change the health care world as we know it.

Then there's iRobot (NASDAQ: IRBT  ) , which filed a patent recently for what it's calling a Robotic Fabricator, or a 3-D printer which can print and assemble a robot without the need for human interaction. While we likely won't see this awesome invention implemented anytime soon, it also serves as another reminder of the industry's potential.

Now 3D Systems isn't directly involved in every one of the above-mentioned innovations, but remember that the steam propelling additive manufacturing in general has been building for decades. And 3D Systems, for its part, boasts the most comprehensive portfolio of 3-D printing solutions out of any other company, largely thanks to multiple acquisitions over the last few years.

Foolish final thoughts
This doesn't mean 3D Systems will be the only company to benefit in the space. To the contrary, I also own shares of iRobot and fully intend to add Stratasys to my portfolio down the road.

In the end, I'm convinced its only a matter of time until 3-D printing solidifies its place as a permanent fixture in our everyday lives. Unless some miraculous unforeseen event manages to change my opinion, I plan on holding shares of 3D Systems in my portfolio for decades to come.

If you'd still like to learn more about 3D Systems to help you 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 the stock today. To start reading, simply click here now for instant access.


Read/Post Comments (12) | Recommend This Article (7)

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 April 08, 2013, at 12:42 PM, Nolte808 wrote:

    I believe Stratasys merged with Objet not DDD.

  • Report this Comment On April 08, 2013, at 12:51 PM, nickzdc wrote:

    DDD did not merge with Objet, SSYS did. You may want to amend your article.

  • Report this Comment On April 08, 2013, at 12:52 PM, nenhob wrote:

    The problem with 3d printing stocks is many are saying we are in a bubble.

    I.e. production is greater than demand currently. If this is the case, ARPU must come down and margins/profits is severely threatened.

    There is no doubt this is a technology of the future, but if the cost/benefit ratio is not there yet for mass consumption this remains a niche market focusing on a few industries. e.g. jewelers.

    Yes the stock has had a 30% pullback.... But it's still up more than 200% since 2012! Has the market really changed that much in 18 months? Is the price point right now more most manufacturers? If it's not than the over supply could be disastrous for the price per unit.

    Forward earnings estimates assume continued momentum and improving margins. If the market is flooded with supply margins will not improve.

    The consumer end of it is a big stretch in my opinion. Shoes? do you really think a 3d printer is going to provide a shoe at a lower price point than a sweat shop in China? Perhaps if you were a unique shoe boutique and were making thousands of pairs, but the consumer needs one pair of shoes. Even if you were a unique shoe botique, I'd be skeptical the price point is right for 3d printers. Medical parts, custom car parts, and aerospace are all high margins businesses were 3d printing may make since, I'm still not convinced mass adoption.

    "I'm convinced its only a matter of time until 3-D printing solidifies its place as a permanent fixture in our everyday lives."

    Yes and so are many others. This is truly a revolutionary technology. The stock on the other hand is pricing in this move in the near term. If momentum does not continue look at below.

    I notice to you use non-gaap numbers for forward PE. There is currently a big discrepency in gaap and non-gaap numbers a yellow flag. Forward gaap estimates puts this one trading with a forward pe of over 40! So growth this year is undoubtedly priced in.

    You may have all the time in the world to wait for 3d printing to hit an inflection point, but the market does not. The chart tells me many think a bubble has formed and is clearly forming a descending triangle. I'd be very careful

  • Report this Comment On April 08, 2013, at 1:24 PM, TMFSymington wrote:

    @Nolte808 and nickzdc: You're right; thanks for catching that! I had intended to reference DDD's growth-by-acquisition strategy followed by a contrast to Stratasys' Objet merger in the next paragraph.

    Give us a few and you can consider it corrected.

    Fool on!

    Steve

  • Report this Comment On April 08, 2013, at 2:08 PM, TangoXray7 wrote:

    There's a common wail among detractors of this industry; consumers don't need or want these things. It doesn't help that 3DS and others like RepRap consistently provide marketing materials showing their machines printing day glo reproductions of Buck Rogers rocket ships. Someone should write them a letter about that.

    If you just can't imagine consumers buying these tools, ask yourself how many friends or neighbors have a table saw in the garage? What about a lathe? Milling machine? Not every house in suburbia sports one, but a significant fraction do and a small lathe/mill from someplace like Harbor Freight will set you back more than twice what a low end 3D printer costs.

    Those who don't make things haven't a clue concerning the forces that effect markets driven by those who do. You may not own a radial arm saw, but you will miss this opportunity unless you make an effort to listen to the people who do. Perhaps that's the way its meant to be.

  • Report this Comment On April 08, 2013, at 4:17 PM, nenhob wrote:

    @Tango: That is awfully naive in my humble opinion. You anticipate a wood working hobbyist who is use to working with his hands to adopt autocad and become interested in computer engineering.

    @Steve: Even if you desired to build your own shoes or guitar, you now assume the household as more creative talent than steve madden or fender.

    The consumer appeal to 3d printing is limited at best. I'm excited about 3d printing from a manufacturing perspective as it now enables micro-manufacturing and those who do believe they are more creative then the industry leaders to manufacture. The problem is the technicals are blown. Your line chart fails to capture the fact that we reached these levels after the earnings announcement, and the chart has continually made lower highs since the announcement. The fundamentals are extended.

    Former long that recently exited my position. I do like the long term prospects but the acquisition driven growth has got to stop at somepoint.

  • Report this Comment On April 08, 2013, at 9:44 PM, chris293 wrote:

    3D has the ability to do almost anything just as long as you have the design layout, materials, and equipment needed. I really like that bone parts may be replaced, so like an old car part Jay Leno replaces, there may be hope for my old bones.

    A number of good points in your article, though I believe as other do, you were off on objet, but I really liked 'bioprinting' and what to think of in the future.

    Thanks

  • Report this Comment On April 09, 2013, at 11:21 AM, TangoXray7 wrote:

    @nenhob: Well, my point was that a person who doesn't own a lathe/mill offering an opinion on the consumer market for machine tools is awfully arrogant in my opinion.

    Do you have a metal lathe in your garage? If you do, you already know that CAD tools are quite a bit easier to use than a manual lathe. That's why god invented CAD tools.

  • Report this Comment On April 09, 2013, at 11:36 AM, TangoXray7 wrote:

    Oh, and Nenhob (what's a nenhob anyway? Is that like a nabob? :) Creative talent isn't in short supply, at least not among my extended family and friends. Does your experience differ?

  • Report this Comment On April 09, 2013, at 11:47 AM, TangoXray7 wrote:

    The real difficulty people who would critique the prospects of 3D printers like the Cube is not whether there is a market for the technology at the price point currently offered, but whether or not that market will choose to buy a Cube or build an open source replicator.

    The folks who would spend the money on a personal 3D printer are also the people who would build their own before they bought into the razors and razor blades model being promoted by 3DS. Even though I'm a firm believer in personal 3D printing systems, I don't own a Cube because I'd rather spend a few days building a RepRap machine that costs about the same in materials but is more capable and uses filaments I can buy much cheaper. An added benefit is that when it breaks I can fix it myself.

    These are the *real* criticisms of current consumer offerings, but the folks who aren't already creators overlook it completely because they have no understanding of the solution space or the factors that drive it.

  • Report this Comment On April 09, 2013, at 1:38 PM, tomd728 wrote:

    Thank you Steve..........

    I really do not know when DDD gets cheap in valuation here.I was fortunate enough to get on and enjoy a great ride through the 3:2 split and made an exit when it looked tired. Lucky ? You bet and I'll take it anytime.

    Mind you I do not understand the patents implications here and with the others in the space and I am not convinced that the home user will give DDD the momentum to really grab space but I do believe the technology is truly revolutionary and I am back in with a short term view and will play some upside if it comes this way.

    Too simple ? Guys like me need it that way........

  • Report this Comment On April 15, 2013, at 11:22 AM, SkepikI wrote:

    DDD is the same kind of casino that Atari, Apple, Northstar and countless others were at the dawn of the PC (yes, I am that old). Who is NORTHSTAR? well that is exactly my point. As previously disclosed months ago, I keep the receipt dated 10-22-82 for my Northstar PC with Wordstar, CP/M os and daisywheel printer on my office wall ($4570 all up) to remind me what can happen. What's a daisywheel printer you say? Well, that's another interesting story making my point....

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