Every day, Wall Street analysts upgrade some stocks, downgrade others, and "initiate coverage" on a few more. But do these analysts even know what they're talking about? Today, we're taking two high-profile Wall Street picks and putting them under the microscope...

It's been roughly three months since 3D printer companies Stratasys (NASDAQ:SSYS) and 3D Systems (NYSE:DDD) reported their respective results for Q3 2018. New numbers for Q4 should therefore be coming out any day now (even if we don't know exactly when). Not content to wait for the news, however, this morning, analysts at investment bank Piper Jaffray upgraded them both.

Here's what you need to know.

3D printer printing characters 3 and D

Image source: Getty Images.

Upgrading Stratasys

Check out the latest Stratasys earnings call transcript.

Piper upgraded shares of Stratasys from neutral to overweight in a note covered by TheFly.com, and raised its price target to $31 -- lighting the fuse and sending the stock soaring 12% in early Tuesday trading.

As the analyst explained, Wall Street's growth expectations for Stratasys over the next 12 months "are the best we've seen in several years." Furthermore, Piper notes that after surveying 3D printer resellers, it believes Q4 results will exceed expectations for both sales of 3D printers and sales of "high margin" 3D printing feedstock. On the latter, Piper further notes that Stratasys has begun selling "elastomer" materials for its printers, and this could accelerate the growth rate of the materials business.

And upgrading 3D Systems stock, too

Check out the latest 3D Systems earnings call transcript.

These same comments apply, too, to Piper Jaffray's recommendation of 3D Systems. Once again, we're looking at an upgrade to overweight, albeit at a lower price target of $17.

StreetInsider.com (subscription required) has the details on this one (emphasis added): "While our Q4 reseller checks for 3D Systems reported another challenging quarter, we believe direct sales of production systems were strong in Q4." (And I'd further add that, because as a rule direct sales cut out the middleman, they're more likely to result in stronger profit margins for 3D Systems, mitigating the negative effect of weak sales via resellers.)

Piper likes 3D's "product positioning for 2019," says the analyst, and particularly its "launch of the Figure 4 platform (dental, stand-alone, modular and production) and a new metal 3D printer (DMP 350)," which Piper believes "should help reaccelerate product growth throughout 2019 and beyond." But more generally, the analyst notes that the "overall 3D printing demand [is] improving and" Piper is beginning to see signs of "the long-awaited move to production applications" -- as opposed to using 3D printers mainly to build prototypes in more limited quantities. This would logically entail greater sales of high-margin feedstock in tandem with greater output.

Choose one...or choose a different one?

Assuming you agree with Piper Jaffray's prediction that there's a resurgence in 3D printing demand coming 'round the bend -- but have limited funds with which to invest in it -- I would lean toward buying Stratasys over 3D Systems at this time. Here's why:

Neither of these two companies has been a barnburner for revenue growth recently, with 3D Systems' revenue up only about 3% (total) in the last three years, and Stratasys sales still below their level of three years ago. Also, neither company is currently profitable. Still, Stratasys is a bit less unprofitable than 3D Systems. Stratasys also boasts positive free cash flow of $41 million over the past 12 months, which gives it a price-to-free-cash-flow ratio of 29 -- not terribly expensive for a company projected to grow at an annualized rate of 30%.

But there's also a third option to consider: If it's "production applications" for 3D printers that really get Piper Jaffray excited, well, Belgium-based Materialise NV (NASDAQ:MTLS) is a 3D printing company laser-focused on 3D printing applications -- rather than hardware manufacture -- producing software to help printers work better, and providing manufacturing services as well.

Profitable where the other two companies are not, Materialise earned $0.10 per share over the past year, and according to data collected by S&P Global Market Intelligence, is expected to triple those profits over the next three years, to $0.32 per share by 2021. Materialize also has a better track record on growth, having seen its sales soar 89% over the past three difficult years for 3D printers, and going from a loss to a profit on the bottom line.

Granted, with a price-to-sales ratio of 3.9, Materialise costs about twice as much as either Stratasys or 3D Systems stock when valued on sales. Then again, with a proven record of sales growth, positive GAAP profits, and actual free cash flow superior to its reported net income, Materialise currently looks like a higher-quality company than Stratasys or 3D Systems -- albeit one with shares that cost quite a bit more.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.