3D Systems Corp: How Does Its Valuation Stack Up to Those of Competitors As We Enter Q2?

The valuations of the once-hot 3-D printing stocks have come partially down to Earth in 2014.

Mar 29, 2014 at 2:30PM

The 3-D printing stocks, which were red-hot in 2013, have been ice cold in 2014. While all the pure-play 3-D printing stocks are down in 2014, ExOne and 3D Systems Corp.(NYSE:DDD) have been the sector's two biggest losers, plummeting 42% and 36%, respectively. Voxeljet, Stratasys, and Arcam are have lost 33%, 22%, and 16%, respectively, of their values since the year began.

Richly valued stocks, subpar earnings results
It's not surprising investors have sent shares of the 3-D printing stocks tumbling this year. The pure plays have now all reported their fourth-quarter and full-year 2013 earnings results, along with their forward guidance, and the sector's results have been weak for such highly valued stocks. (Here are articles highlighting earnings for 3D Systems Corp., Stratasys, ExOne, Arcam, and voxeljet.)

While most of the companies reported strong revenue growth, none of them impressed with earnings, and ultimately, it's the bottom line that drives stock price performance. The reasons for the subpar earnings vary somewhat, but the key reason is essentially the same among the two leading players, 3D Systems Corp. and Stratasys. Both companies, most especially 3D Systems Corp., are pursuing turbocharged growth strategies designed to capture as much market share as possible, as fast as possible. These companies plan on sacrificing short-term profits for long-term growth potential. Not only has 3D Systems been gobbling up many smaller companies for years, but it moved into a major teaming mode last year. In 2013, it partnered with a wide range of leaders in diverse industries, including Google, Hasbro, and Hershey Company.

Stratasys hasn't been as aggressive in its growth strategy, likely because it's been busy digesting its megamerger with Objet. Based upon information the company has released this year, however, investors should expect Stratasys' growth game to kick into a higher gear.

A major reason these companies are in a race to capture market share relates to material sales. The more 3-D printers a company installs, the more reoccurring revenue from material sales it should generate, as most printers use proprietary materials. Additionally, "consumables" sport higher profit margins than other segments of these companies' businesses, so they have an outsized effect on earnings. 

Valuations at the start of 2014 vs. now
Given the pummeling the 3-D printing stocks have taken in 2014, their valuations have generally come down rather substantially since the start of the year. Here's how the 3-D printing stocks stacked up by common valuation measures and a couple other key metrics, as of Jan. 3.

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.

Here's how they stack up, as of March 28.

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.

As you can see, stock valuations have dropped significantly across the board, with the exception of Arcam. 3D Systems Corp., in fact, is now more reasonably valued than Arcam on both a price-to-sales and a price-to-earnings basis. The two companies are quite different, as 3D Systems is much 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 commonality: they're both profitable from a GAAP standpoint.

3D Systems Corp.'s stock valuation is now more in line with Stratasys' valuation, at least from a P/S basis. At the start of the year, 3D Systems sported a nearly 30% premium relative to Stratasys, whereas it's now just 11% more richly valued. While one could argue that 3D Systems deserved to be more highly valued because it's profitable, whereas Stratasys is not, a 30% premium seemed quite steep. It's important to remember that Stratasys has historically been profitable; its merger with Objet negatively affected profitability, which was to be expected. Importantly, Stratasys is expected to return to profitability this year. 

Foolish final thoughts
There's no guarantee that the 3-D printing stocks will resume their upturns soon (or at all, for the matter). However, investors with long-term horizons who believe in the earnings growth potential of one or more of these companies might find current stock prices present attractive entry points. I think it's likely that we could see further divergence among the stock price performances within the sector as the year continues. If this proves the case, prudent stock selection becomes even more important. 

The 1 best way to profit from the next big megatrend: wearable computing 
If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now, for just a fraction of the price of Apple stock. Click here to get the full story in this eye-opening new report.

 

Beth McKenna has no position in any stocks mentioned. The Motley Fool recommends and and owns shares of 3D Systems, Apple, ExOne, Google, Hasbro, and Stratasys. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers