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Why Stratasys Stock Just Jumped Higher

By Rich Smith - Dec 9, 2020 at 1:39PM

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Origin was a Stratasys partner. Soon, it will be Stratasys' newest subsidiary.

What happened

Investors in 3D printer maker Stratasys ( SSYS -6.56% ) are having a good Wednesday, as their stock leaps 7.5% higher (as of 12:50 p.m. EST) in response to news that Stratasys is rolling up one of its competitors.

Specifically, Stratasys announced today that it will acquire 3D printing start-up Origin for up to $100 million in cash and stock.

Origami dollar folded into an arrow pointing up

Image source: Getty Images.

So what

Even more specifically, Stratasys will pay $60 million immediately upon closing (which is expected to happen in January 2021), and then an additional amount up to $40 million over the next three years as "performance-based earnouts" based on how well its new subsidiary does. Payment will comprise $45 million in Stratasys stock and $55 million in cash, with the bulk of the cash paid up front.

Now what

Stratasys expects that adding Origin's "proprietary Programmable PhotoPolymerization" technology to its business will generate $200 million in incremental sales over the next five years. Stratasys' guess here should be pretty good, by the way, because it has been partnering with Origin for more than half a year already, utilizing Origin's tech to produce nasopharyngeal swabs for use in COVID-19 testing. By now, one would imagine that Stratasys has developed a very good grasp of its new acquisition's performance and potential.

All this new revenue will not, however, be immediately profitable for Stratasys -- which has reported seven straight years of losses under generally accepted accounting principles (GAAP), by the way, and is working on its eighth, according to data from S&P Global Market Intelligence. Rather, the company warns that the acquisition will be "slightly dilutive" to earnings in 2021 and will begin adding to pro forma income only in 2023.

That prospect doesn't seem to be frightening investors today, however. Today, they're all about the revenue growth Stratasys is promising, and they're buying the shares hand over fist because of it.

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.

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