A Tiny 3-D Printing Company I'm Buying

Ever since August 2011, I've been calling out one or two companies every month that I was putting my own retirement money behind. Over that time, my picks have returned about 27%, beating the S&P 500 -- not including dividends -- by 8 percentage points.

Never, though, have I made an investment that looks as ridiculously silly as this one. By any and all traditional metrics, an investment in Organovo (NYSEMKT: ONVO  ) is downright stupid. But read below to see why I'll be buying shares when Fool trading rules allow.

Have I lost my mind?
There's no doubt that 3-D printing is a red-hot industry for investors right now. Industry stalwarts 3D Systems (NYSE: DDD  ) and Stratasys (NASDAQ: SSYS  ) have proven that there's a market for this new technology that can lead to ballooning revenue and profit.

During 2012, while focusing primarily on industrial clients, Stratasys pulled in $215 million in revenue, while banking a profit of $8.8 million. 3D Systems, on the other hand, focused intensively on the consumer market, generating $354 million in revenue, and taking home profit of $39 million.

Both companies have also shown remarkable growth over the past three years.

DDD Revenue TTM Chart

DDD Revenue TTM data by YCharts.

But despite the fact that these two players have shown that 3-D printing can be profitable, there are still bound to be doubters in a company like Organovo.

Consider the following: Over the past 12 months, Organovo has generated a grand total of $1.3 million in revenue, of which 20% was from grants; during the same time frame, the company had a net loss of $21.6 million. And yet, Organovo is valued at a whopping $300 million.

For those without calculators handy, that's about 230 times sales. Crazy.

Why I'm buying
And yet despite these numbers, I'm going to be putting my own money behind the company. You might still consider me crazy after hearing them, but I have three key reasons for making this move.

First, Organovo has a focused niche that neither 3D Systems nor Stratasys has made a play for: bio-printing. Though it sounds straight out of a science-fiction novel, the company can produce functional human tissue that some think could one day lead to the engineering of actual body parts.

That's a little far-fetched, though, and I like to focus on what the company can do right now -- which is to offer the pharmaceutical industry a powerful new tool -- its Novogen MMX Bioprinter.

Source: Organovo. 

Because Organovo can allegedly produce human tissue that more closely "replicate[s] native human biology," the process of conducting research on new medicines could become much quicker.

This is important; the 3D tissue could help drug companies eliminate potential drugs -- and save a lot of money -- sooner, as their efficacy would become relevant much earlier in the trial process. As these trends show, that would be a welcome development in an industry seeing fewer FDA approvals and higher costs.

Source: FDA, Pharmaceutical Research and Manufacturers of America, Organovo. 

This leads me to my second point: This technology is in its infancy, but major players are already starting to test it out. Both Pfizer (NYSE: PFE  ) and United Therapeutics (NASDAQ: UTHR  ) have taken the bait to test Organovo's tissue.

The company's agreement with Pfizer was completed in late 2012, and Organovo is waiting to hear back from Pfizer as to whether the company wishes to continue using Organovo's product. The agreement with United Therapeutics, on the other hand, is currently still under way, with the company using Organovo's technology to help research pulmonary hypertension treatments.

Though it's impossible to know the outcome of these initial dabbles into Organovo's technology, any further agreements between these companies could create a huge boost for Organovo's revenue.

And the final reason I'm willing to take a bite of Organovo stock is because -- seeing as it is very volatile, and has no history of producing meaningful profits -- it will occupy a very small part of my overall portfolio.

Should I lose the $500 I'm investing in the company, it wouldn't be the end of the world. But by buying in, I'll continue to follow the company. If its technology catches on, I'll be keyed into the growth story early enough to add further positions before the rest of the market catches on.

If you'd like a more in-depth view of 3-D printing, you should check out "3 Stocks to Own for the New Industrial Revolution." Bigger companies like 3D Systems and Stratasys are included in the report, but so is a much less appreciated stock with just as much potential as the biggest industry players. Just click here to learn more.


Read/Post Comments (8) | Recommend This Article (17)

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 August 13, 2013, at 12:55 PM, IdgitFool wrote:

    $500 seems like a very tiny amount to invest. I think this company is a game changer in the medical field. It is only a matter of time before this stock takes off. I know they have predicted 20 years to print an organ, but my guess is it will be faster than that. (Think exponential growth in technology.) Plus, their printed tissues (esp. liver) should be in demand within the next year for drug testing. Just my foolish thoughts.

  • Report this Comment On August 13, 2013, at 2:49 PM, 110254545yy wrote:

    BETTER AT $4.5

  • Report this Comment On August 13, 2013, at 3:09 PM, DPRStock wrote:

    As a surgeon in this country right now i would advise a little caution on growth and ingenuity in the medical field. With the affordable care act there is a large push to maximize a patient's health dollar and new drugs are particularly a pain to get approved right now. We have to document an enormous amount of medical necessity and honestly i end up relying on the cheaper alternatives to avoid having to spend my evenings at my desk. I'm sure my fellow physicians would agree that drug testing is going to go through a quiet phase for a while with demand being impacted by our decisions. Now organ tissue transplant. That could be promising.

  • Report this Comment On August 13, 2013, at 5:11 PM, FooLawson wrote:

    I agree with all of you... I do have about a $1,000 investment in this stock. This is to me a game changer, bio-printing. Of coarse I would like it to be at $4.5 since there is no revenue, but if and when a company buys their $100,000 printer's, especially one like Pfizer(PFE), I could see a wave coming from that. This is just the beginning, I can't wait to see how their long-term performance goes...

  • Report this Comment On August 14, 2013, at 4:44 PM, neeza101 wrote:

    Included in my investment criteria in a biotech is the potential of the drug/process. Here, the potential is huge. In looking into ONVO, we find several very smart scientists working on this innovation. It is definitely worth a buy/hold investment. Brian is right.

  • Report this Comment On August 19, 2013, at 12:24 PM, MelissainVA wrote:

    I bought my original position at about $3 and now own several hundred shares. I think this will be a game changer and at the very least an acquisition target for a larger firm in the not so distant future.

  • Report this Comment On November 05, 2013, at 9:05 PM, ouarmy2012 wrote:

    There was research that came out that ONVO has proven that their bio printed human liver tissue shows toxicology results using acetaminophen. A great boost to showing their technology works.

  • Report this Comment On November 18, 2013, at 8:24 PM, alexanderantonio wrote:

    I'd like to add that quite a few people, myself included, have felt burned by the 3d printing revolution that has taken off recently. I for one, bought DDD when it was around 22, then sold out 4 months later because I had already made 45%. Now that companies like 3d and stratsys have proven it's possible, I think a lot of investors realize the potential that this company has.

    The medical field is just as big of an industry as industrial printing is, and I would assume much larger than personal 3d printing. If these companies can have a market cap of 8.2B and 6B, there is no reason why onvo couldn't be there in a couple years as well.

    It will be worth it to at least invest a small portion of your portfolio into this company.

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