3D Systems (NYSE:DDD) stock is up 36.1% in 2017 through July 17, more than triple the S&P 500's 11.1% return over this period, as investors have been buoyed by improvements in the 3D printing company's recent financial results. While this is a hefty gain in less than seven months, the stock is still down big-time over the longer term. 

In which general direction the stock price goes from here could depend upon many factors. Let's look at two reasons 3D Systems' stock price could fall. To be clear -- this is not a declaration that these two things will happen or that the stock will decline. It's simply an examination of one bear thesis, just as I recently did for the bull side

Business man looking downward while standing on a downward pointing arrow with a graph in background.

Image source: Getty Images.

1. Figure 4 could fail to gain traction in the polymer "3D manufacturing" market

3D printing is still primarily used for prototyping, with its use in manufacturing relatively new and still quite limited. So there's massive growth potential for the industry in manufacturing. The industry's two biggest players, 3D Systems and Stratasys, and at least two formidable new entrants are focused on capturing some of this growth by launching 3D printing systems for producing end-use polymer parts. (Plastics fall within the polymer category.) 

The companies that succeed in the "3D manufacturing" world will likely be the long-term winners -- and see their stock prices rise, while those that don't succeed in this realm will likely either stagnate or worse, along with their stocks. So 3D Systems' newly launched Figure 4, which is both the name of the technology and the system, could be make or break for the company. 

In March, 3D Systems commercially launched Figure 4 and announced that it had shipped its first system to a Fortune 50 industrial company, which it didn't name. Figure 4 is a robotic, modular, stereolithography (SLA) 3D printing system designed to produce polymer parts. The company touts the tech is up to 50 times faster than conventional SLA technology, which uses a light source to harden polymers. In addition to being speedy, Figure 4 reportedly opens up vast materials possibilities. Slow speeds and limited materials availability have been among the key factors preventing 3D printing from being used in a greater number of manufacturing applications.

To succeed in the market, Figure 4 will have to perform well relative to competitors' systems aimed at production applications. This won't be a walk in the proverbial park, as two notable competitors entered the market last year. Deep-pocketed HP Inc. used its 2D-printing expertise to develop a speedy and otherwise compelling 3D printing technology, Multi Jet Fusion, and has launched two 3D printers based on this tech. Well-funded start-up Carbon has also launched two 3D printers based on its super-fast Continuous Liquid Interface Production technology, as well as a 3D printing system consisting of connected products.

In March, 3D Systems said it planned to increase Figure 4 shipments throughout the second half of this year. So if management doesn't share sales data of some type (such as number of systems sold) when it reports full-year 2017 results early next year, investors should probably take that to mean that sales aren't going as well as the company expected. 

It's not possible at this stage to estimate the likelihood that Figure 4 will fail in the market. 

Man standing at a desk with a Desktop Metal 3D printer on it.

Image source: Desktop Metal.

2. Its metal 3D printing business could suffer or fail because of competition

In recent years, 3D Systems hasn't provided sales data for its metal 3D printing business. However, it seems safe to assume that this business accounts for less than 10% of the company's total revenue, based upon exchanges on the recent quarterly conference calls. This business, however, is probably more important to 3D Systems' future success than this relatively small revenue number suggests, for two reasons: Metal 3D printing is the fastest-growing space within the industry, and the metal business is probably -- just my educated guess -- more profitable than the company's overall business.

Competition in the metal 3D printing space has also heated up recently. Late last year, General Electric entered the 3D printing business by shelling out more than $1 billion to acquire controlling stakes in two European companies that make metal 3D printers. In April, start-up Desktop Metal unveiled two metal 3D printing systems that it claims are faster and more cost-effective than those now on the market, and suited for an office environment.  

That 3D Systems has been mum on its metal business for some time would lead me to speculate that it hasn't been performing that well. So its metal business might be particularly vulnerable to increased competition.

Takeaway

Increased competition is the biggest threat to 3D Systems' business -- and, hence, its stock price. Investors should monitor the progress of new entrants, particularly HP and Carbon, since polymer 3D printing is 3D Systems' bread and butter. Though keep in mind that while competition is increasing, so, too, should the size of the overall 3D printing market, so this isn't a zero-sum game.

Beth McKenna has no position in any stocks mentioned. The Motley Fool owns shares of General Electric. The Motley Fool recommends 3D Systems and Stratasys. The Motley Fool has a disclosure policy.