Is 3D Systems Destined for Greatness?http://www.fool.com/investing/general/2012/11/10/is-3d-systems-destined-for-greatness.aspx Alex Planes
November 10, 2012
Every investor can appreciate a stock that consistently beats the Street without getting ahead of its fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with improving financial metrics that support strong price growth. Let's take a look at what 3D Systems' (NYSE: DDD ) recent results tell us about its potential for future gains.
What the numbers tell you
Growth is important on both top and bottom lines, and an improving profit margin is a great sign that a company's become more efficient over time. Since profits may not always reported at a steady rate, we'll also look at how much 3D Systems' free cash flow has grown in comparison to its net income.
A company that generates more earnings per share over time, regardless of the number of shares outstanding, is heading in the right direction. If 3D Systems' share price has kept pace with its earnings growth, that's another good sign that its stock can move higher.
Is 3D Systems managing its resources well? A company's return on equity should be improving, and its debt-to-equity ratio declining, if it's to earn our approval.
By the numbers
How we got here and where we're going
3D Systems' latest quarterly report put an exclamation point on a generally solid year, with improvements in virtually all the important metrics we look for in growth stocks. The company needs to keep putting up impressive results to justify the intense (and growing) investor interest swirling in the sector, which has also pushed rival Stratasys (Nasdaq: SSYS ) to similar heights. Both companies have pushed the 3-D printing industry toward greater and greater consolidation in the past two years, snapping up peers large and small on the way to a near-duopoly. That's helped each company continue to impress investors, but it also raises the question of whether they can enjoy similar levels of organic growth now that there are few remaining 3-D printing players to acquire.
3D Systems is also leading the charge (at least for the publicly traded 3-D printing companies) toward in-home adoption, which is a trend I've previously argued against as a major growth driver. However, there is still tremendous potential for 3-D printing to augment or supplant the current online sales infrastructure with a network of "on-demand manufacturing centers" staffed primarily by robots. If you're going to contemplate the future of a transformative technology, you may as well go all the way. Additionally, 3-D printing could be (and already is, on a very limited basis) used to construct biological tissue, which would revolutionize the pharmaceutical industry as well as the process of organ transplants. Bioprinting specialist Organovo (NASDAQOTH: ONVO) might wind up as 3D Systems' next acquisition target if the technology starts to catch on.