3-D Printing Stocks: After This Week's Rout, How Do They Stack Up By Valuation?

If you're following the 3-D printing space, you likely know that the sector was pummeled on Wednesday. The catalyst for the group's drop was industry juggernaut 3D Systems (NYSE: DDD  ) announcing preliminary 2013 earnings results and issuing 2014 earnings guidance, both of which fell significantly short of its prior guidance and analysts' estimates.

As is typical within a sector or industry -- especially a "hot" one, where valuations are sky-high -- shares of the other major 3-D printing companies fell in sympathy.

When the market closed out the day, 3D Systems, which had been in the red as much as 28% early in the trading day, was down 15.4%. The other sector leader, Stratasys (NASDAQ: SSYS  ) , escaped with just a 6% loss. Industrial-focused ExOne (NASDAQ: XONE  ) , newly public voxeljet (NYSE: VJET  ) , and Swedish metals printer Arcam (NASDAQOTH: AMAVF  ) closed down 11.4%, 6.6%, and 6.5%, respectively.

Thursday's trading saw the two leading companies gaining back about 1%, ExOne recouping nearly 4%, Arcam dipping slightly in the red, and voxeljet giving up close to 2%.

3D Systems' warning 
3D Systems earnings' warning seemed just a matter of time, given that the No. 2 player by annual revenue, Stratasys, announced a similar warning last month. ExOne also released a warning in January, though on the revenue side, and for different reasons than its two bigger peers.

3D Systems now expects 2013 adjusted earnings per share in the range of $0.83-$0.87, down from its previous guidance of $0.93-$1.03. Revenue guidance was materially unchanged, with management simply narrowing its guidance to $513 million-$514 million, the midpoint of its previous range of $500 million-$530 million. 

As for 2014 guidance, the company now expects revenue in the range of $680 million-$720 million, while adjusted earnings per share are expected to be $0.73-$0.85. Analysts had expected EPS of $1.27 on revenue of $671.3 million.

Using the midpoint figures, 3D Systems is expecting EPS will decrease nearly 12% in 2014, while revenue will grow about 36%.

The company cited increases in research and development, marketing, and acquisition-related expenses in the fourth quarter as the primary reasons for the lower than expected earnings in 2013. The lowered guidance for 2014 is due to 3D Systems' game plan, taken from a page from Amazon.com, remaining the same as it was in the fourth quarter: sacrifice short-term profits for spending on activities intended to fuel long-term growth and capture market share. The million-dollar question, of course, is will the game plan work or will it result in a race to the bottom on margins across the sector?

Stratasys' and ExOne's warnings
In January, Stratasys lowered its 2014 guidance for adjusted earnings per share to the range of $2.15-$2.25, below analysts' estimates of $2.31. It also provided revenue guidance of $660 million-$680 million, which was above the consensus estimate of $658.5 million.

Stratasys, likewise, cited a planned ramp-up in its marketing and research and development activities as the reasons.

My take on Stratasys' and 3D Systems' similar actions is a bit different. Stratasys had and has no choice but to ratchet up its game if it wants to stay competitive with 3D Systems, as 3D Systems has been announcing diverse partnerships and key acquisitions left and right. These include partnering with Google on Project Ara, which has the potential to be watershed moment for 3-D printing if it's successful, and acquiring Phenix Systems, which gave it the capability to print metals.

3D Systems, on the other hand, is currently the sector's top dog. So, its 2014 R&D and marketing ramp-up is designed to increase its lead, not to play catch-up. That said, it also has little choice, at least on the R&D end, as it has key patents that start expiring this year.

As for ExOne, it lowered its 2013 revenue expectation to a range of $40 million-$42 million, below its prior guidance of $48 million. The company cited delayed approvals for foreign sales of four systems as the reason. This is just a case of revenue shifting, as ExOne expects to book these orders in the first half of this year. ExOne is a relatively small company that sells pricey 3-D printers, so quarterly revenue will likely be "lumpy" for a while.

How the 3-D printing companies now stack up by valuation
Here's how the major 3-D printing stocks stack up by common valuation measures, as of Feb. 6:

Company

Market Cap

Annual Revenue (Millions)

Price/Sales

P/E

P/E (FRW)

Operating Margin (TTM)

Profit Margin (TTM)

3D Systems

$6.7B

$460.2

14.6

140

84

18.7%

9.6%

Stratasys

$5.5B

$400.5

13.7

N/A

50.1

(1.1)%

(7.3)%

ExOne

$593.3M

$41.5

14.3

N/A

147

(0.7)%

(5.7)%

Arcam

$728.2M

$29.5

24.7

215

N/A

11.5%

11.0%

voxeljet

$489.1M

$13.0

37.6

N/A

N/A

0.6%*

(2.0)%*

Sources: Yahoo! Finance; voxeljet's third-quarter earnings report. *For nine-month period through September 30.

3D Systems seems to deserve to sport somewhat of a premium valuation relative to its main competitor and peer, Stratasys, given it's profitable on a GAAP basis, has metals printing capabilities (which Stratasys does not, though will surely attain in 2014, in my opinion), and has inked a deal with deep-pocketed Google. That said, the valuation differential grew a bit too much -- at least the market sees it that way -- over the course of 2013. When we entered 2014, 3D Systems' market cap, price-to-sales, and forward P/E were respectively about 40%, 30%, and 30% higher than Stratasys'. 

Perspective
With the exception of Arcam, 2014 hasn't been kind to 2013's red-hot sector. The one-year-performance chart should put things in perspective.  

DDD Chart

Data by YCharts.

If you're an investor in one or more of the 3-D printing stocks, the best move is likely staying the course unless there's been a material change to your investing thesis. 

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Read/Post Comments (6) | Recommend This Article (2)

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 February 07, 2014, at 6:16 PM, anindakumars wrote:

    "fell in sympathy" - i like your sense of humor :)

  • Report this Comment On February 07, 2014, at 6:28 PM, ScottAtlanta wrote:

    3D systems is rounding up all the physicists...

    Scary stuff.

  • Report this Comment On February 07, 2014, at 8:27 PM, brandonchen wrote:

    Why are you writing something that the market already knows? This article should better serve members one month ago...

  • Report this Comment On February 08, 2014, at 10:21 PM, brandonchen wrote:

    Pls check your forward PE calculation for DDD, it should be more 140x this year because the EPS is declining this year.. How can it be 56.8x?

  • Report this Comment On February 09, 2014, at 12:47 PM, TMFMcKenna wrote:

    @Brandon,

    You are correct that forward PE is off. I used figures from Yahoo Finance, which obviously haven't been updated yet to reflect DDD's revised forward (2014) guidance. Good catch.

    Using the midpoint for DDD's 2014 EPS guidance ($0.79), the fwd PE is 84. It wouldn't be 140. While it seems like it would be about 140, given the current PE is 140, that current PE is for the reported trailing-12-month period. It's not for 2013, as Q4 numbers haven't been "officially" reported yet. Once they are, the trailing PE will change.

  • Report this Comment On February 20, 2014, at 9:39 AM, wildeweasel wrote:

    You forget to mention that almost every stock in every sector in all markets fell at the same time. 3D printing stocks were hit a little harder because they had rapid growth and where getting a lot of negative press. The negative press seems to be building again along with the short float so I guess they are having another go at it. I still see the 3D printing industry as an extremely good long term investment and have be adding to my positions.

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