The last decade has not been kind to investors in three-dimensional printer manufacturer 3D Systems (NYSE:DDD). Will the next 10 years be any kinder?
From August 2006 to August 2016, 3D Systems' stock almost made a complete (short) circuit, rising from a single-digit stock price to approach $100 a share, only to lose nearly all of its gains and end up close to where it began. Now, as we peer into the future, we've asked three Fool contributors to dust off their crystal balls and predict what the next decade might hold for 3D Systems.
Here's what they came up with.
Expect an ongoing transformation and a focus on healthcare
Sean Williams: There's little denying that the past two-and-a-half years have been miserable for shareholders of 3D Systems. A slowdown in enterprise orders, which was likely precipitated by some mixture of slowing U.S. economic growth, increased 3D printing competition, and the desire of enterprise customers to see what new products could soon be coming to market, has weighed on the industry. So, what's next for an industry giant like 3D Systems? That's the big question.
As is often the case with next-generation technology, investors overestimate its immediate impact and bid company valuations well beyond a reasonable level. In my opinion, 3D Systems could be thriving 10 years from now, but not before undergoing a few major transformations first.
For example, in late 2015, 3D Systems announced the end of its entry-level 3D printer, the Cube, after demand proved lukewarm at best. Wall Street had been banking on consumer-level adoption of 3D printers as one of their strongest growth drivers, but it doesn't appear that'll happen anytime soon. Though the move only reduced revenue by about 2%, ending the consumer line took the wind right out of shareholders' sails. It's possible we could see 3D Systems move away from other ventures, too, after it figures out which products and segments offer the best bang for the buck.
Let's not forget that 3D Systems purchased more than 30 companies between 2009 and 2012, and it takes time to integrate those businesses to realize cost synergies and understand how those products can best impact 3D Systems' customers. We may still be witnessing the disorganization created by 3D Systems' half-decade-long buying spree. I should hope that in 10 years 3D Systems has abandoned its M&A-focused growth strategy and chosen to grow organically.
Where I believe 3D Systems has an opportunity to really shine is in healthcare. Baby boomers are aging, and the U.S. Census Bureau predicts that by 2050 we'll have 83.7 million elderly Americans, up from around 43 million in 2012. That means more people reliant on medicine and medical devices to make their lives easier. That's where the ongoing push to personalize medicine comes into play. 3D Systems is developing everything from implants to dental aligners and hearing aids for the healthcare industry. Furthermore, it should have no problem maintaining its pricing power on the healthcare side of the equation thanks to rising costs from prescription drugmakers.
If healthcare solutions become 3D Systems' most robust industry in 10 years, my forecast would be to expect the stock to be notably higher then than it is now.
Expect the best, fear the worst?
Rich Smith: Notably higher? That's one possible outcome, I suppose -- but it's not the one I'd predict.
Remember, while most of us only became familiar with the 3D printing revolution in industry a few short years ago, 3D Systems' stock has been around a lot longer. For most of the company's history, though, it's been pretty much a dud, with a stock price stuck in the single digits.
Why is that? Here are a few clues. According to data from S&P Global Market Intelligence, 3D Systems has grown its revenues at an average 27% annual clip over the past five years. Profit growth, on the other hand, has been anything but consistent. Emerging from GAAP losses into GAAP profitability only in 2009, 3D Systems' stock rocketed to $44 million in annual net profit by 2013, fueling hopes of boundless profits in years to come. Instead of that outcome, though, profits stalled in 2014 -- falling 74% -- then fell clean off the cliff last year, as the company began reporting massive losses on its income statement.
3D Systems lost more than $655 million last year, or more than three times as much profit as it had reported over the preceding 25 years combined -- an entire corporate lifetime's worth of profits, wiped out in just one year.
So, will 2015 prove fatal to 3D Systems? Is it "the beginning of the end," and the start of a trend that will end in the company's bankruptcy? That would be a nice, clear "10 year forecast" to make. In truth, though, I don't believe that's the fate that awaits the company, which boasts a cash-rich balance sheet, no long-term debt, and reasonable levels of free-cash-flow generation, despite the lack of GAAP profits.
Rather, I see slowing sales, stagnating profit margins, and heightened competition from the likes of HP Inc. combining to consign 3D Systems stock to its historical pattern of subpar performance and low stock prices in future years. It's not bankruptcy that I predict, therefore, but merely uninspiring performance as an investment.
Heller-berg's uncertainty principle
Steve Heller: In an industry that's been changing as quickly as 3D printing has, there's no telling where 3D Systems will be in 10 years. Despite this uncertainty, I still think the company's long-term success hinges on its ability to offer compelling manufacturing solutions to the market.
Over the next 10 years, I expect 3D printing to have fully transitioned from primarily being a prototyping technology to being a viable manufacturing technology. Currently, 3D printing is at the point where it's trying to "cross the chasm" into manufacturing applications. These efforts have been slow going and challenging, as customers are not quite ready to fully embrace the Third Industrial Revolution, a term coined by The Economist that envisions 3D printing sparking a paradigm shift in how the world approaches design and manufacturing.
Eventually, when this chasm is crossed, because of greater customer acceptance and the continued evolution of the technology, the opportunity surrounding using 3D printing to manufacture final parts and products will far exceed -- by orders of magnitude -- prototyping applications. After all, designers usually only makes dozens of prototypes compared to the thousands -- and sometimes millions -- of final parts produced.
From a business standpoint, 3D Systems operates a razor-and-blades model where 3D printer usage fuels the recurring sales of materials, which tend to command higher profit margins. Since manufacturing uses are likely to drive higher usage rates than prototyping, 3D Systems will have more opportunities to generate recurring sales of materials.
In other words, if 3D Systems can successfully cater to manufacturing applications, a strategy it recently started to emphasize, the company is likely to increase the lifetime value of its customer base.
The future's uncertain, but 3D Systems' end is nowhere near
And maybe that's the best way to sum up the next 10 years -- not just for 3D Systems' stock in particular, but for 3D printing in general.
In an industry this young, it's not easy to pick the ultimate winners and losers. 3D Systems might "win" the 3D printing revolution, or it might not. With strong cash flow and a well-managed balance sheet, though, we can say with some assurance that while we don't know whether 3D Systems will win or lose, it's well-positioned to claim a place in this industry -- today and for years to come.
Rich Smith has no position in any stocks mentioned. Sean Williams has no position in any stocks mentioned. Steve Heller owns shares of 3D Systems. The Motley Fool recommends 3D Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.