3D printing stocks in general are having a good 2017 after getting clobbered for several years. But one stock in the group stands out above the rest for its superior one-year performance: Materialise (NASDAQ:MTLS).
The stock of the Belgium-based 3D printing company, which went public in June 2014, has gained a whopping nearly 107% in the one-year period through July 24. This performance far outpaces that of the three other pure plays that have market caps of at least $100 million and are listed on major U.S. stock exchanges -- 3D Systems (NYSE:DDD), Stratasys (NASDAQ:SSYS), and ExOne -- as well as the performance of manufacturing service provider Proto Labs, which has a fairly substantial and growing 3D printing business.
There are probably a few reasons Materialise, which provides 3D printing software and services, flies under most investors' radars:
- It went public about six months after the shine began wearing off 3D printing stocks, as they generally had started their deep declines when the calendar flipped to 2014.
- It's not as large as the two industry bigwigs, 3D Systems and Stratasys. It has a market cap of $671 million, versus 3D Systems' $2 billion and Stratasys' $1.3 billion.
- It's a foreign company.
- Its business is perhaps not as easy to grasp and/or as exciting to follow as companies that make 3D printers.
Materialise was founded by its CEO Wilfried Vancraen in 1990, which means it has quite deep roots for a 3D printing company, as the technology was only invented in the mid-1980s. (For perspective, the two first-movers in the industry, 3D Systems and Stratasys, were founded in 1986 and 1989, respectively.)
The company breaks its business down into three segments:
- Medical: This includes medical software and production of customized medical implants and surgical guides. This business has locations around the world, including several in Europe, and one in the United States (outside of Detroit), Columbia, Brazil, Australia, Malaysia, China, and Japan.
- Software: The company's software enables and enhances the functionality of enterprise 3D printers and 3D printing operations. It sells its software to 3D printer manufacturers, which bundle the software with some of their printers, as well as directly to end users. This business has locations in the U.S., the U.K., Germany, Malaysia, China, and Japan.
- Manufacturing: This category provides on-demand 3D printing of prototypes and end-use parts in polymers and metals for commercial and industrial customers. The company has service centers throughout Europe, and believes its Leuven, Belgium, location to be one of the world's largest single-site 3D printing service centers. Customers include many of Europe's top companies. In addition to offering a full range of standard 3D printing technologies like those offered by 3D Systems and Stratasys, the company has Mammoth systems, which use its proprietary stereolithography (SLA) technology to print very large parts.
Financials are heading in the right direction
Materialise has been posting solid revenue growth, and its loss has been narrowing, with Wall Street analysts expecting the company to be very slightly profitable this year and even more profitable next year. In its most recently reported quarter, year-over-year revenue jumped 19.7% to 31.9 million euros, or $34.1 million. Net loss narrowed 74% to 816,000 euros, or $873,000, with loss per share narrowing 72% to 0.02 euros, or $0.02. Results by segment were as follows:
|Segment||Q1 2017 Revenue||Revenue Growth (YOY)||Percentage of Total Revenue||Adjusted EBITDA Margin|
|Medical||9.9 million euros||15.4%||31%||3.2%|
|Software||8.6 million euros||15.4%||27%||34.9%|
|Manufacturing||13.4 million euros||26.4%||42%||9.9%|
|Total||31.9 million euros (or about $34.1 million)||19.7%||100%*||8.8%**|
Software is by far the company's most profitable segment, which isn't surprising since software in general is a higher-margin business.
A promising stock, but pricey
With its revenue growing solidly and a return to profitability on the horizon, Materialise stock looks quite promising. (The company was actually slightly profitable when it went public and into 2015, but has more recently been investing to grow its business.)
Materialise stock doesn't have a price-to-earnings ratio since the company is currently not profitable on a trailing-12-month basis. Relative to the other players in the chart, the stock's price-to-sales ratio of 5.1 is somewhat high, though we'd generally expect smaller companies to have higher valuations since it's easier for them to grow revenue and earnings on a percentage basis. (Materialise has a market cap of $671 million, while 3D Systems, Stratasys, and Proto Labs have market caps of $2 billion, $1.9 billion, and $1.3 billion, respectively.)
The stock's forward P/E of 1,701 is sky-high, though this isn't all that uncommon for stocks in high-growth industries that are growing revenue at a nice pace and are on the cusp of achieving profitability. Analysts are predicting more substantial EPS of $0.14 next year, so the one-year forward P/E is 99, which is still high, but much more palatable. A stock with these valuations isn't for the faint of heart, but more risk-tolerant growth investors could find Materialise stock a worthy watch list candidate.