3D printing has been a hot topic for four or five years, but most of the discussion has been around hype of what 3D printing could be. There's talk of 3D printed cars or redefining how manufacturing works, but the reality is that 3D printing is still used in many of the same ways it was a decade ago. Product developers love 3D printing because they can design a part and in a matter of hours have a physical part to show to management or a potential customer. But manufacturing applications are small.
So, while Stratasys, Ltd. (NASDAQ:SSYS) and 3D Systems Corporation (NYSE:DDD) may get a lot of attention for their desktop 3D printing products or 3D printed metals, the increase in productivity is happening at companies like Proto Labs Inc (NYSE:PRLB), which is why it's the one 3D printing stock I want to own in 2017.
What Proto Labs does
The primary business of companies like Stratasys or 3D Systems is to sell 3D printers and the material they run on. More equipment in the field is good and more utilization of that equipment is also good.
Proto Labs takes a different approach to the entire rapid prototyping industry. It offers a service that automates production of small runs of parts on a variety of platforms. Parts may be 3D printed, injection molded, or produced on a CNC machine, any of which are fine with Proto Labs. This offloads the equipment cost from developers to Proto Labs and gives developers the ability to produce parts on demand -- there's no need to be an expert in running the equipment. The company just needs customers to demand rapid production of parts.
This makes Proto Labs technology and materials agnostic for their customers. Where their advantage comes in is the software that parts are uploaded to, quoted from, and then produced off of. Once someone knows how to use the system, it's easy to come back with new product ideas or parts to prototype. That leads to a sustainable advantage for Proto Labs compared to companies that need to keep selling equipment to stay afloat.
Why Proto Labs is different than 3D rivals
It sounds crazy, but I want to own companies that can make money. And when comparing 3D Systems, Stratasys, and Proto Labs the one thing that stands out is their bottom line. You can see below that Proto Labs isn't the biggest company of the three, but it's by far the most profitable and consistent operator in the group.
Proto Lab's better financial performance isn't by accident. It isn't depending on selling equipment each quarter and it didn't have to go on an expensive acquisition spree to fill out the product portfolio. It just needs product developers to want more rapid prototyping capability, which is indeed growing long term.
3D printing may not be the only thing Proto Labs does, but it's adding 3D printing capabilities to molding and CNC processing and fitting it into a profitable business model. That's something equipment manufacturers don't currently have, and it's why Proto Labs is the one 3D printing stock I want to buy in 2017.