3-D Printing Stocks: How Do They Stack Up by Valuation As We Enter the Second Quarter of 2014?

What a difference three months makes! The 3-D printing stocks, which were 2013's darlings, have considerably cooled down in 2014. All the pure-play 3-D printing stocks are in the red for the first quarter of this year. Sweden-based Arcam (NASDAQOTH: AMAVF  ) and the sector's second-largest player Stratasys (NASDAQ: SSYS  ) , however, are holding up relatively well, as they've loss just 16% and 22%, respectively, of their values this year. ExOne, 3D Systems, and voxeljet haven't fared as well, as they're down 42%, 36%, and 33%, respectively. 

The 3-D printing sector's first quarter in a nutshell
It's not surprising investors have punished the 3-D printing stocks during the first quarter of this year. All five of the pure plays have now reported their fourth-quarter and full-year 2013 earnings results, along with their 2014 guidance, and the sector's results have been subpar for such highly valued stocks. (Here are articles about each company's earnings: 3D SystemsStratasys, ExOne, Arcam, and voxeljet.)

Most of the players reported strong revenue, though none of them impressed with earnings, and ultimately, it's the bottom line that matters. While the reasons for the lukewarm, at best, earnings have varied somewhat, the general party line has been: We're sacrificing short-term profits for long-term growth potential. 3D Systems has been the most aggressive pursuing this strategy, as it's teamed with a host of leaders in diverse industries last year. Stratasys hasn't been as aggressive in its growth strategy, likely because it's been busy over the last couple years digesting its big merger with Objet. Based upon information the company has released this year, however, investors should expect Stratasys to up its growth game.

There is a good reason beyond the obvious ones why the 3-D printing companies want to capture as much market share as possible, as fast as possible: The more 3-D printers a company installs, the more reoccurring revenue from material sales it should receive, since most 3-D printers currently use proprietary materials. Additionally, sales of "consumables" generally generate higher-than-company-average profit margins.

How do the 3-D printing players stack up by current valuations?
If there's any good news in the 3-D printing sector stocks being pummeled in the first quarter, it's that valuations across the board have at least partially come back down to Earth. They're still high on an absolute basis, but for those investors who believe in the long-term earnings growth potential of one or more of these companies, this could be a buying opportunity.

Here's how the 3-D printing stocks stacked up by valuation and a couple other key metrics at the start of 2014.

Company

Market Cap

Annual Revenue (Millions)

Price/Sales

P/E

P/E (FRW)

Operating Margin (TTM)

Profit Margin (TTM)

3D Systems

$9.9B

$460.2

21.0

209

75.3

18.7%

9.6%

Stratasys

$6.7B

$400.5

16.3

N/A

58.3

(1.1%)

(7.3%)

ExOne

$962.6M

$41.5

21.7

N/A

155.6

(0.7%)

(5.7%)

Arcam

$585.9M

$29.5

20.2

173

N/A

11.5%

11%

Voxeljet

$729.8M

$13.0

55.9

N/A

N/A

0.6%*

(2.0%)*

Sources: Yahoo! Finance; voxeljet's third-quarter earnings report. *For nine-month period through Sept. 30. Data as of Jan. 3.

Here's how they stack up now, as we're about to enter the second quarter.

Company

Market Cap

Annual Revenue (Millions)

Price/Sales

P/E

P/E (FRW)

Operating Margin (TTM)

Profit Margin (TTM)

3D Systems

$6.1B

$513.4

11.8

132

48.8

15.8%

8.6%

Stratasys

$5.1B

$484.4

10.6

N/A

35.6

(2.5%)

(5.6%)

ExOne

$508.3M

$39.5

13.2

N/A

110.1

(14.4%)

(16.4%)

Arcam

$562.4M

$30.2

18.4

216

N/A

7.3%

7.7%

Voxeljet

$409.5M

$16.1

25.4

N/A

N/A

(17.2%)

(23.2%)

Sources: Yahoo! Finance; voxeljet's fourth-quarter earnings report. Data as of March 28.

Valuations have come down significantly across the board, with the exception of Arcam. Arcam's price-to-sales ratio dropped a bit, though its price-to-earnings ratio increased 25% to 216. (That's because the company's trailing-12-month earnings decreased after the fourth-quarter results were released; not because the price has increased.) Arcam is now considerably more highly valued on both a P/S and P/E basis than the sector's leader, 3D Systems. The two were about equally valued on a P/S ratio and 3D Systems was pricier on a P/E basis when we started 2014. The two companies are quite different; 3D Systems is considerably larger and offers the sector's broadest range of 3-D printers and materials, while Arcam exclusively focuses on metals printers for the aerospace and medical implant industries. They do, however, share one key feature: They're the only two companies that are profitable from a GAAP standpoint.

Foolish final thoughts
While these is no guarantee that the carnage has ended, investors with long-term horizons who believe in the earnings growth potential of one or more of the 3-D printing stocks might find current stock prices present an attractive entry point. That said, I think it's likely we'll see further divergence among the stock performances of the players as we move forward, so prudent stock selection becomes even more crucial. 

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