I'm Buying This 3-D Printing Stock Now

In the investing world, it's just about impossible to make a blanket statement like: "You should buy this stock now!" The problem arises with the word "you". It assumes that everyone is in a similar financial situation, with similar tolerance for risk, and similar goals; that is ludicrous. There is no universal "you."

So, instead of trying to make stock suggestions that fit all people at all stages of life, I've found that the best way I can personally help the world to invest better is to simply tell people what my situation is and what stocks I plan to buy before buying them.

I am in my 30s with a wife and one child. I currently rent, and I don't have any debt. I don't mind taking risks because I don't plan to touch my retirement money for decades. And for the past two years, I've called out one stock every month that I plan to buy for my Roth IRA.

Since I started calling out these stocks, the average recommendation has returned 39%, which is beating the S&P 500 by a wide margin -- 15 percentage points! Today, I'm taking a dip into a richly valued field: 3-D printing.

I'm doing this because, during the year-end review of my family's finances, I realized 3-D printers only make up about 5% of our holdings. As I believe this technology will be far more commonplace 30 years from now, I'd like to increase that allocation. Of the three biggest players in this scene, I'm choosing one to be my next purchase. Read below to find out which.

Three great companies, but any good stocks?
There's really no industry that's been as hot in the stock market over the past two years as 3-D printing. And no three stocks are as talked about as 3D Systems (NYSE: DDD  ) , Stratasys (NASDAQ: SSYS  ) , and ExOne (NASDAQ: XONE  ) . Take a look at how investors in these companies have fared since January 2012.

SSYS Chart

SSYS data by YCharts.

ExOne isn't included because it went public less than a year ago, but has already seen its shares more than double.

To get a better idea of the differences between Stratasys , 3D Systems, and ExOne, you can read up on what our 3-D industry guru Seth Heller has written about them by clicking on the associated links, but the super-simple explanation looks like this:

Company

Markets

Management Style

Materials

3D Systems

Consumer, commercial, industrial

Aggressive acquisitions have been a key to growth

Plastic, metal

Stratasys

Consumer and commercial

Conservative approach to acquisitions -- but when they are made, they're big

Plastic

ExOne

Industrial

Focused on building out its own infrastructure

Sand, metal, and glass

Though I'm currently a shareholder of 3D Systems, if forced to choose just one of these three, I'm crossing it off the list. First, 3D Systems currently trades for 70 times expected earnings. But more importantly, its growth-by-acquisition strategy is one that I'm not the most comfortable with. I will always favor organic growth over growth by acquisition, as the acquisition route is far more complicated and prone to mismanagement.

That leaves me with Stratasys and ExOne. Between these two, the factor that is the most important to me is revenue growth. But since 2010, both companies have grown revenue at about the same rate, 58% per year -- which doesn't make my decision any easier.

On the recent earnings front, both companies took hits that were, in my opinion, overreactions.

Stratasys announced that it saw 2014 revenue coming in ahead of expectations, but that profit would be slightly lower than hoped for. The market punished shares; they fell as much as 13%. But the fact that the shortfall is the result of aggressive reinvestment in the business -- especially a buildout of manufacturing capacity -- seems like a very strong sign.

And ExOne created a lot of discomfort for investors when it announced that revenue for the fourth quarter would come in about 15% short of expectations. That's a big difference, and shares fell by as much as 11% following the announcement. But digging deeper, the shortfall wasn't from lost sales but rather the timing of five key deals closing, which will be on the books for the first quarter of 2014.

That leaves simple valuation as one of the last differentiators for me.

Company

2014 Expected
Price-to-Earnings Ratio

Price-to-Sales Ratio

Stratasys

56

15

ExOne

131

22

Source: E*Trade, Yahoo! Finance.

Clearly, both of these companies are expensive. But ExOne is markedly more so. Consider the fact that Stratasys founder Scott Crump is the chairman of the company's board -- and that I love investing alongside founders -- and I'm willing to cast my lot with Stratasys.

To be clear, all three companies have enormous potential in the future. But by guiding you through how I made my decision, I hope it's easier for you to decide which 3-D printer is right for your portfolio, should you wish to dive into the industry.

A secret player in the 3-D printing industry
We're in a position to dominate the global manufacturing landscape thanks to a single, revolutionary technology: 3-D printing. The trick now is to identify the companies -- and thereby the stocks -- that will prevail in the battle for market share. To see the three companies -- including one lesser-known company that's not mentioned in this article -- that are currently positioned to do so, simply download our invaluable free report on the topic by clicking here now.


Read/Post Comments (3) | Recommend This Article (15)

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 January 19, 2014, at 7:51 AM, Ostrowsr wrote:

    But XONE is the beneficiary of coming sales to support the new industrial revolution. When companies start to buy, and they are already, the PE will drop way down. The question is more about the companies' ability to keep up with demand. And that's a nice problem to have. Next few years will be all about management ability to deal with this problem.

  • Report this Comment On January 20, 2014, at 1:55 PM, thomasgkinley wrote:

    You begin this article by stating that you are a long term investor for your IRA. Then, all of your analysis focuses on short term reasons.

    If you are a long term investor of 30 years for your IRA, you need to consider who will be the dominant market player in this space, not the 2014 P/E ratio.

  • Report this Comment On January 21, 2014, at 5:45 PM, TMFCheesehead wrote:

    @thomasgkinley-

    That's a fair point. But I'd look at it as a series of tiebreakers, starting like this, to determine which to invest in:

    1. Do I understand the business (yes on all three)

    2. Would I enjoy following these companies (yes on all three)

    3. Am I a fan of their growth model (DDD out)

    4 Can I envision a scenario where company becomes more and more relevant with time? (yes on the two left)

    5. Are revenues growing quickly (yes on the two that are left)

    6. Are founder's still on board (yes for SSYS)?

    7. Is one trading at a discount to the other (SSYS, though both are high).

    This to say that I think both XONE and SSYS would make excellent long-term investments. But needing to pick one, I looked towards value, which is someone short-term thinking when talking about growth companies. But because many of the long-term characteristics I look for are present in both, it became the tie-breaker.

    Best,

    Brian Stoffel

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