3D Systems (DDD +1.06%) stock is up 39.3% in 2017 through July 14, as investors have been encouraged by an improvement in the company's more recent financial results. That's a big gain in just over half a year, but it's still a mere blip over the longer term, as the stock is down about 80% since peaking in January 2014.
Where the stock price is heading from here could depend on many factors. Let's look at two reasons 3D Systems' stock price could rise. To be clear -- this is not a declaration that these two things will happen or that the stock will rise. It's just an examination of the merits of one bull thesis, just as I'll also be doing with a bear thesis.
Image source: Getty Images.
1. Figure 4 could be a success in the market
Figure 4, commercially launched this year, is a key component of 3D Systems' strategy to help transform 3D printing from a primarily prototyping technology to one that's used in a wide range of production applications. The tech is reportedly quite speedy and opens up many materials possibilities, which is critical, because slow speeds and limited materials availability are two of the top factors that have been holding 3D printing back from making more inroads into manufacturing applications.
Figure 4 is a robotic modular stereolithography (SLA) 3D printing system designed for the production of plastic parts, which the company claims is up to 50 times as fast as conventional SLA systems. (SLA, which 3D Systems founder Chuck Hull invented, is a photopolymerization 3D printing technology, using a light source to harden polymers, a materials class that includes plastics.) Figure 4 comes in configurations ranging from one print engine to fully automated systems with 16 or more print engines.
In March, 3D Systems announced that it had recently shipped the first Figure 4 system to a "Fortune 50 industrial customer." At the same time, it also unveiled a Figure 4 platform, along with materials specifically designed for dental applications, which is expected to be available in the fall.
3D Systems plans to ramp up Figure 4 shipments throughout the second half of this year. So investors should expect some sales data or at least commentary about sales when 3D Systems reports its full-year 2017 financial results in early 2018. Ideally, management will provide investors with some color on the topic when the company reports its Q3 results later this year.
It's not possible at this early stage to estimate the likelihood that Figure 4 will be a success.
Image source: 3D Systems.
2. 3D Systems' healthcare business could continue to grow
3D Systems' healthcare-solutions business has typically been a bright spot over the past few rough years. This business consists of both products and services. It encompasses medical-device design and manufacturing, production of patient-specific anatomical models, virtual surgical planning, medical-procedure simulation, and dental design and manufacturing services.
In 2016, healthcare revenue grew 5% from 2015. That's far from heady growth, but it's respectable, given that 3D Systems' overall revenue declined 9.5% in the year. The company and main rival Stratasys have struggled to grow revenue since a widespread slowdown in demand for their products and services began in 2015.
In Q1, healthcare revenue jumped 29% from the year-ago quarter to $43 million, accounting for more than 27% of the company's total revenue of $156.4 million. However, this growth was not all organic. In the quarter, 3D Systems acquired Vertex Global, which has a portfolio of dental materials that have regulatory approvals in numerous countries. (The company didn't disclose sales data for the acquisition.)
It seems at least moderately likely, in my opinion, that 3D Systems' healthcare business revenue will continue to grow. However, the company doesn't provide information on operating income or any other form of profitability for this business.
Wrapping it up
Over time, 3D Systems' stock price will reflect the company's financial performance. There are numerous factors that could contribute to the success or failure of the company's business, but the two we've discussed here could be the most important to its success, in my view.
Investors should watch the market uptake of Figure 4 and the performance of the company's healthcare business. Since 3D Systems doesn't provide any measure of profitability for its healthcare business, investors will need to rely on revenue growth and management comments during the earnings calls to get a feel for the changes in profitability of this business.
