Is This 3-D Printing Stock's Sell-Off Overdone?

Whether you love or hate them, you have to admit the potential for 3-D printing stocks is downright mind-boggling.

To be sure, the underlying companies behind these stocks build and sell printers that can utilize literally dozens of different materials to print almost anything you can think of, including but not limited to scale models, medical prostheses, automobile and plane parts, dishware, jewelry, shoes and, well, you name it, these guys can probably print it.

Heck, additive manufacturing stalwart 3D Systems  (NYSE: DDD  ) is even working on making printable food a possibility, and fellow market leader Stratasys (NASDAQ: SSYS  )  recently merged with desktop 3-D printing specialist MakerBot, whose 3-D printers you might recall Ford intends to put in the hands of every one of its engineers by the end of 2013.

Then there's relative newcomer ExOne (NASDAQ: XONE  ) , which held its initial public offering this past February and exclusively focuses on selling high-end industrial 3-D printers.

All three stocks have had solid runs in 2013 so far, with 3D Systems and Stratasys rising around 26% year to date, and ExOne up almost 70% since the day after its IPO.

Curiously enough, however, though you'll usually find these three stocks trading in lockstep, much of this year's gains for Stratasys and 3D Systems have come over the past three months, a period during which ExOne shares have plummeted by nearly a third:

XONE Total Return Price Chart

XONE Total Return Price data by YCharts.

So what gives?
If you're wondering what happened since then, look no further than ExOne's secondary stock offering, which closed last month and during which more than 3 million shares of common stock were sold at $62 per share for a total of more than $189 million.

So what's the big deal, right? After all, 3D Systems has had no problem diluting shareholders to finance its recent acquisition spree, and Stratasys held its own public offering just last month, selling almost 5.2 million shares, which netted the company more than $462 million.

Unfortunately, investors frowned especially hard at ExOne last month because the company itself only sold just 1.106 million shares in the offering -- or less than half the total -- receiving only $64.8 million after deducting underwriting expenses. Meanwhile, the remaining ExOne shares were actually sold by existing stockholders, notably including CEO Kent Rockwell and three other high-ranking executives.

As a result, the offering predictably resulted in no less than two negative analyst initiations for ExOne, both of which simultaneously recommended holding shares of Stratasys and buying 3D Systems.

To their credit, however, it's also worth noting that shares of both 3D Sytems and Stratasys currently trade just under 41 times next year's earnings estimates. If that sounds steep, consider that even after the recent plunge, shares of ExOne are currently trading for around 97 times next year's earnings.

But can you blame ExOne management? Remember, that $62-per-share number was more than triple the $18 IPO price back in February, and the stock's valuation was admittedly richer than ever. What's more, as an ExOne representative also pointed out shortly after the offering, insiders still own 27.5% of all outstanding shares and that includes Rockwell's massive 21.9% stake.

Call me crazy, but that makes it awfully difficult to argue ExOne management has completely lost faith in its company.

In addition, investors also need to remember while the much smaller ExOne has yet to turn a profit, it may deserve a slightly higher premium as it's also growing much more quickly than its larger competitors.

Remember, while ExOne did plunge around 8% following its August 14 earnings release after narrowly missing analysts' expectations, you can see from its gradual rebound during the ensuing weeks the market seemed to agree with my assessment that its earnings report really wasn't all that bad, especially as gross margin continues to improve, its net loss narrowed by more than two-thirds, and revenue nearly doubled from the same year-ago period.

At the same time, the already-profitable Stratasys and 3D Systems last quarter posted year-over-year organic revenue growth of 20% and 32%, respectively.

Foolish takeaway
All in all, as I wrote at the end of August, I'm still "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." When that happens, something tells me patient long-term investors who buy today will look back and laugh at the opportunity the recent dip has presented.

More expert advice on 3-D printing stocks from The Motley Fool
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Related Tickers

9/30/2016 4:02 PM
DDD $17.95 Up +0.29 +1.64%
3D Systems CAPS Rating: ****
SSYS $24.09 Up +0.14 +0.58%
Stratasys CAPS Rating: ****
XONE $15.22 Up +0.15 +1.00%
ExOne CAPS Rating: ***