Stratasys Ltd. (NASDAQ:SSYS) was once one of the hottest stocks on the market, promising a future where products could be customized with 3D printed parts by almost anyone. As the theory went, 3D printers would be on office desks and in classrooms around the world, bringing custom creations to anyone.
That hasn't exactly been how 3D printing has played out. Instead, we've learned that very few people have the skills needed to design 3D parts, and businesses just aren't as eager to customize products as we might have thought. The growth story has evaporated, and Stratasys is now hoping it could be a value stock for long-term investors -- but even that might be a stretch.
The decline of Stratasys
The chart below shows some of investors' disappointment in Stratasys. The company went from a growth machine in the early 2010s, only to see revenue pull back in the last three years. On top of that, operating margins have gone negative, leading to hundreds of millions of dollars in losses for the company.
One of the challenges Stratasys and other 3D printing companies faced was a market that had limited upside. Once 3D printers become ubiquitous for high-end users like engineers and product designers, there isn't a lot of ability to grow the market. Consumers haven't shown interest in learning computer-aided drafting programs that 3D parts are printed from, and the custom manufacturing business has proven to be limited. As a result, Stratasys has shifted its focus to customers who see value in the rapid production of custom parts in small batches, but even that market is taking off slowly.
High-end customers are taking longer to ramp than expected
As the hope for growth in the consumer market for 3D printers has fallen off, Stratasys has put more bets on projects with larger manufacturers and government contracts. For example, Stratasys signed a deal with Ford in 2017 that could allow Ford to make a number of production or custom parts with large-scale 3D printers.
The problem has been slow adoption in these markets. CEO Ilan Levin said they were disappointed in performance in the first quarter, one reason the stock hasn't performed well this year.
We are disappointed with our revenue for the first quarter, which is primarily attributed to underperformance in North America related to high end system orders, specifically from customers in government and other key verticals such as aerospace and automotive
They're still bullish on large manufacturers expanding their use of 3D printers, but the timing of this growth market is unknown. In the meantime, losses continue to mount for Stratasys.
Not the time to buy
I think the 3D printing business will open up a world of possibilities for manufacturers and product designers, but the market is clearly limited to a certain niche of highly qualified people. It's unlikely we'll see 3D printers in homes or schools on a widespread basis, and that will limit growth potential.
Without growth or an easy path to profitability, I don't see Stratasys as a great buy today. It has a lot to prove before investors should bet on a turnaround.