Whoa! What Just Happened to 3-D Printing Stocks?

On Monday morning, 3-D printing stocks gave investors something to smile about as they collectively popped by as much as 10%, easily outpacing the broader market's moderate gains.

And though those gains abated as the day wore on, as of this writing the additive manufacturing stalwarts in 3D Systems (NYSE: DDD  ) and Stratasys (NASDAQ: SSYS  ) are up 9.7% and 6%, respectively. Meanwhile, industrial 3-D printing leader ExOne (NASDAQ: XONE  ) is currently up more than 5%, and organic tissue specialist Organovo (NYSEMKT: ONVO  ) is trading 10% higher.

So what gives?
If you're looking for the source of this great start to the week, look no further than analyst Kenneth Wong at Citigroup, who initiated positive coverage on 3D Systems and Stratasys this morning, listing both stocks as a buy with price targets of $60 and $125, respectively.

For those of you keeping track, even after today's pop that represents a roughly 13% premium for shares of 3D Systems, and a gain of more than 11% from current levels for Stratasys investors.

Wong, for his part, wrote that he believes the 3-D printing market "is on the cusp of seeing much broader adoption across more upstream production applications and the consumer end market," a trend which he believes could triple the market in just five years. In addition, Wong says, they it's safe to expect existing customers to increase utilization of systems currently in place as the scope of additive manufacturing continues to expand.

To be sure, it's hard to argue the additive manufacturing industry is growing by leaps and bounds.

After all, General Electric just last week announced plans to leverage its latest acquisition in Morris Technology to use additive manufacturing to produce all of its LEAP engine fuel nozzles by 2016, marking the largest ever production scale in which 3-D printing will be used. 

What's more, select brick-and-mortar Staples locations began selling 3D Systems' Cube printers in May, and 3D Systems told investors last month its second-quarter revenue grew roughly 45% over the same period last year, thanks largely to 30% organic growth and a 108% increase in printer sales. However, that didn't stop the stock from declining as much as 10% that day after dilution (caused by floating its acquisition-funding $250 million stock issue) negatively affected the company's earnings per share.

3D Systems' Cube printer, Image source: 3D Systems

Then, on Aug. 9, Stratasys stock jumped 14% after the company beat estimates with 20% organic revenue growth, and adjusted net income which rose an even more impressive 32%. Better yet, though Stratasys revised its 2013 earnings guidance downward because of its recent $400 million merger with MakerBot, the deal was less dilutive than analysts had originally feared and is set to be accretive to earnings in 2014.

Finally, less than two weeks ago, ExOne's weak guidance its shares to tumble by as much as 16% following its own second-quarter earnings report, thanks to a weaker Japanese yen and higher operating expenses. Even so, I remained optimistic considering that the company's revenue increased 97% year over year, and gross margin is set to continue improving through the end of this year, which should bring it near the higher end of the company's expected range of 42%-46%.

Meanwhile, though Organovo's most recent earnings show it undoubtedly remains in the incredibly early development stages for its own tissue-printing market, the company's growth potential in the health care field remains absolutely incredible. Investors, for their part, have shown they're more than happy to wait for those opportunities to materialize. Organovo earlier this month increased the size of its own secondary offering by 15% to 10.35 million new shares, raising roughly $43.3 million to keep its impressive research moving forward.

Foolish takeaway
Of course, while I'm sure Organovo investors are happily guilty by association with the company's larger industry brethren, Citigroup's coverage initiation rightly indicates the most significant traction lies with the already profitable additive manufacturers in 3D Systems and Stratasys. What's more, I'm also convinced it will only be a matter of time until the yet-to-be-profitable ExOne finds a way to propel its operations into the black.

So if you're looking to start or add to a small position in 3-D printing stocks, I remain convinced 3D Systems, Stratasys, and ExOne are all great places to begin.

With the U.S. relying on the rest of the world for such a large percentage of our goods, many investors are ready for the end of the "made in China" era. Well, it may be here. Read all about the biggest industry disrupters since the personal computer in "3 Stocks to Own for the New Industrial Revolution." Just click here to learn more.


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Related Tickers

10/30/2014 4:00 PM
DDD $37.00 Down -0.10 -0.27%
3D Systems CAPS Rating: ****
ONVO $6.43 Up +0.21 +3.38%
ORGANOVO HOLDINGS CAPS Rating: ***
SSYS $115.41 Down -1.42 -1.22%
Stratasys CAPS Rating: ****
XONE $24.53 Up +0.45 +1.87%
ExOne CAPS Rating: ****
C $53.15 Up +0.51 +0.97%
Citigroup Inc CAPS Rating: ***
GE $25.67 Up +0.01 +0.04%
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SPLS $12.56 Up +0.20 +1.62%
Staples CAPS Rating: **

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