Sell Your 3-D Printing Stocks Today?

I'm going to attempt something a little odd today, Fools. Even though shares of 3-D printing companies make up 4% of my real-life holdings, and I'm bullish on the technology's future, I'm going to be giving you three reasons to sell your 3-D printing stocks today.

Why am I doing this?

Recently, Nobel Prize winner Daniel Kahneman visited Fool headquarters in Virginia. While visiting, he talked about how a number of different biases can lead us to believe we can predict the future with relative certainty. In reality, he argued, we're just deluding ourselves.

It got me to thinking about how I don't write enough about the risks of owning the stocks I own. So although I don't plan on selling my 3-D printing stocks anytime soon, I think it's healthy for me to practice and model this behavior.

Let's go over two of the biggest names in the industry.

Company

Specialty

Market Cap

Revenue (ttm)

Price-to-Earnings

Price-to-Sales

3D Systems (NYSE: DDD  )

Consumer printers

$4.4 B

$378 M

68 

12

Stratasys (NASDAQ: SSYS  )

Industrial printers

$3.5 B

$267 M

58 

13

Source: Yahoo! Finance, E*Trade, SEC filings.

3D Systems

Source: 3D Systems 

This company is home to the founder of 3-D printing, Chuck Hull. Though it has only entered the spotlight over the past few years, 3D Systems has been around for over 30 years. And though the company's recent performance has been spectacular – 40% revenue growth and 84% earnings growth per year for the past three years – there are reasons to be wary.

First and foremost is the company's price. At 68 times earnings and 12 times sales, many could reasonably argue that 3D Systems' stock is priced to perfection. Short sellers are clearly aware of this, as 27% of 3D System's float is being sold short. Any disappointing news could send the stock in a downward spiral.

Then, there is the company's growth-via-acquisition model. Since the beginning of 2011, 3D Systems has acquired 17 different companies. Bulls will argue that this is one way for 3D Systems to accumulate the collective knowledge of 3-D printing under one roof, brand name, and logo. They may be right, but that many acquisitions has to raise eyebrows as to whether money is being well spent and if revenue growth really is as impressive as it seems.

Finally, there's the competition. Though 3D Systems does have its hand in the industrial field, its primary focus is in consumer-facing 3-D printers.

Until recently, only Makerbot's Replicator2 rivaled 3D Systems' Cube printers. But Makerbot didn't have the financial resources to pose a serious ongoing threat to the company.

Source: Makerbot 

That is, until rival Stratasys bought Makerbot and can now pump cash into building the brand. That presents a serious change to the consumer landscape that investors need to be aware of.

Stratasys
Speaking of Stratasys, lets tackle this company next. As with 3D Systems, the first red flag for investors should be the price of Stratasys' stock. Again, the company has shown impressive numbers – 43% revenue and 52% earnings growth per year over the last three years. But the company now trades at 58 times earnings when analysts only expect earnings to grow by 31% between 2013 and 2014.

Source: Stratasys 

Secondly, while Stratasys has been using acquisitions far less frequently than 3D Systems, it has made two big splashes within the past year. First was the announced merger with Objet, an Israeli company that gave Stratasys access to new technologies as well as new industrial markets. The second was the aforementioned merger with Makerbot

While investors have generally cheered both of these moves, it remains to be seen if this was money well spent.

If the overall market for 3D printers ends up being smaller than the outsized predictions, both of these companies – and their shareholders – stand to endure disappointing results.

What's a Fool to do?
As things stand now, I'm still a big believer in 3-D printing. I own shares of both Stratasys and 3D Systems, though I like the growth strategy at Stratasys more, and it comprises a larger part of my holdings. I would suggest against going "all in" on either company; instead, allocate reasonable amounts to the field if it interests you.

If you're looking for a 3-D printing company that's currently pulling in way more revenue that 3D Systems and Stratasys combined, I suggest you check out our free report, "3 Stocks to Own for the New Industrial Revolution". I'll give you a hint and tell you that 3D and Stratasys are two of the companies, but to find out what the third is, you'll have to get your copy of the report. Just click here to learn more.


Read/Post Comments (16) | Recommend This Article (13)

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 July 17, 2013, at 12:54 PM, dion2727 wrote:

    The nobel prize winner is also delusional as all of us are during our lifetimes.Life is a risk from conception to our demise,but mankind is not constrained to have hope in an idea,a wife,a career,children.If we wait until everything is certain

    we would become slugs. Therefore dream on all you fools and be not afraid of life.Certainty is death and then we look to the future.What say ye nobel laureate do you have even a modicum of certainty.

  • Report this Comment On July 17, 2013, at 1:32 PM, Spookdblog wrote:

    Sounds like you;re setting up a short sale.

    Three Dimensional printing is a futuristic concept; it's been around for quite a while, but was expensive, and the materials were difficult to work with.

    That's changed, and the economies of scale have lowered the price.

    I remember reading reviews like yours back in the 1980s that dismissed desktop computers for the same reasons you use to slam 3D printing. I bought my first desktop in 1990 for $6,000, and it had far less capacity than my first cell phone which I bought a few years later [also an avant-garde, and very expensive technology.

    Should I ask if you were slamming an innovative little tech company called Apple when it had ratios similar to DDD?

    Dismiss the future if you will; it only serves to lower your credibility.

  • Report this Comment On July 17, 2013, at 1:54 PM, TMFCheesehead wrote:

    @Spookdblog-

    Please read the intro carefully. I am a shareholder of both DDD and SSYS, but I think it's important to examine the other side of the investing coin, and that's what I attempted to do in this piece.

    Brian Stoffel

  • Report this Comment On July 17, 2013, at 2:38 PM, dion2727 wrote:

    What you say is true but your headline belies your faithfulness in your belief.The rest of the article is old technical know-how which we have read many times.That's why I answered intellectually.Your HEADLINE is what may have others upset.WE should be careful of what our intents may be.Headlines are eye catching and may not represent your views.The reader is left with a sour view of your intelectual honesty.

  • Report this Comment On July 17, 2013, at 3:25 PM, MichalTod wrote:

    It's always a joy to read comments from readers who have only bothered to read the headline and not the article.

  • Report this Comment On July 17, 2013, at 3:48 PM, dion2727 wrote:

    You have joined the club of valuing disinformation and a reflection of the ill-informed and stating a conclusion you have made after reading my mind!!!!! AMAZING intellect??????

  • Report this Comment On July 17, 2013, at 4:13 PM, MelissainVA wrote:

    I read the article. As well as the similar one on IPGP. I appreciate what Brian is trying to do. To remind us of the risk associated with stocks. AND I really wish he wouldn't write the headlines in such a sensationalized manner. I get it. YOur building buzz and it's common with all forms of social media. But there are other ways to do it.

    Even if the text of the article doesn't suggest selling, it's hard to escape the emotional charge created by the headline and the lingering doubt that maybe not everyone at MF is committed to the stocks that are recommended in SA.

    If you really want to write an article about the risks associated with a particular stock, then do it..but leave the sensationalized headlines behind in the editing. We're smart readers. WE don't need it to catch our interests. And you don't need to leave faithful clients with the lingering doubt that these headlines create.

  • Report this Comment On July 17, 2013, at 4:28 PM, MelissainVA wrote:

    Brian, I'll try to let this go, but feel the need to add more. I guess I would ask what your intention is when you write a headline like that? To grab our attention with a bit a shock, is my guess. And this is what I and others are reacting to. Don't shock us unnecessarily. And even worse, falsely. I value MF advice. It's why I pay for it. I don't want to have reason to doubt it. And headlines like these that are disconnected from the substance of the article do leave lingering doubt for me. And if this isn't adequate to get you to reconsider your approach, how about this, it's what the silly writers over at Seeking Alpha and other analysts who I avoid do to capture attention. Be better than them!

  • Report this Comment On July 17, 2013, at 4:38 PM, TMFCheesehead wrote:

    @MelissainVA-

    Point well taken. There is a tightrope between telling people WHAT you will be writing about and WHY you're writing it, and trying to fit that all in a headline. For the time being, I think something as simple as adding a "?" to the end is a good idea (which, it seems, my editors just took care of).

    I appreciate the thoughtful feedback, and hope you feel as if your point has been heard.

    Brian Stoffel

  • Report this Comment On July 17, 2013, at 4:51 PM, MelissainVA wrote:

    Fool On Brian!

  • Report this Comment On July 17, 2013, at 5:15 PM, Hibiscusanole wrote:

    Our local school is training students on a 3-D printer and renting its use to the community. The vocational school clearly sees some value in it as job training, as they paid $60,000 for it.

  • Report this Comment On July 17, 2013, at 8:25 PM, fxl wrote:

    One of your last predictions on ddd was: that it was either going up or down 13%, on the earnings report. I interpreted , you thought it would go down. With that, I sold all of my shares in ddd, ssys, xone, and dasty. I figured, if one was going down they all were. What a mistake that was ! I wish you had said : you were not selling.

  • Report this Comment On July 17, 2013, at 10:51 PM, TMFCheesehead wrote:

    fxl,

    I'm assuming you are referring to this piece:

    http://www.fool.com/investing/general/2013/07/13/3-stocks-th...

    I'm sorry that you mis-interpreted what the article was about. ExOne was the company I was focusing on, not DDD, and I was pointing out that investors needed to be ready because there was a set of variables in place (heavy short interest, past volatility) that made it likely the stock would make big news on the earnings announcement.

    Luckily, there's always time to buy back in if you believe in the company, the technology, and the stock.

    Brian Stoffel

  • Report this Comment On July 17, 2013, at 10:51 PM, TMFCheesehead wrote:

    **big news** = big MOVES.

  • Report this Comment On July 21, 2013, at 4:11 PM, tmt304 wrote:

    My comment is in relation to Mr. Kahneman's talk. My gut tells me that 3-D printing has the potential to be huge, but the tipping point is not near. Still I'm in with DDD and SSYS because I think they aren't the risky stocks. The driver of widespread 3DP won't be the hardware; it's going to be the software. CATIA, AUTOCAD, SoildWorks, etc. suck for any consumer use, and, this industry ain't gonna tip until people can utilize 3DP in daily, commercial activity. CAD software isn't ready and I don't see any other software/technology angles anywhere near ready to make it happen.

    Printing organs is cool and it can be profitable, but it's specialized equipment with specialized programming. Limited, specialized profitability.

    At this point, getting a 3D printer for Christmas just means Johnny will make plastic crap in the basement similar to how getting a Commodore 64 computer in the 70's resulted in the kids playing Pong. Having a 3D printer in the home isn't enough; there has to a compelling need.

    When the time is right, DDD and SSYS should stick around for a least the curtain opening, but the stage is still dark. I bet the answer is out there- in a university lab.

  • Report this Comment On July 21, 2013, at 5:16 PM, FooLawson wrote:

    Anybody have any foolish comments on the Bio-industry of 3-d printing?

    I am looking for a good 3-d printing biotech company... So far best one I have found is ONVO...

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