Now that the first half of 2022 is in the rearview mirror, we're going to look at the performances of 3D printing stocks during this period.
For context, the first half of this year was the S&P 500 index's worst January-through-June period since 1970. It dropped 20.6%, or 20% if we include dividends. The tech-heavy Nasdaq Composite performed even worse, plunging 29.5%, or 29.2% including dividends.
The market's poor performance is largely due to pandemic-driven global supply chain bottlenecks occurring at the same time that consumer demand for many goods was rebounding strongly. These concurrent events ignited inflation, which the Federal Reserve is trying to control by aggressively raising interest rates.
3D printing stocks' first-half 2022 performances
Only companies with stocks that have market caps of at least $300 million (meaning they're small-cap stocks or larger) are included in this table. Stocks are listed in order of first-half 2022 performance.
|Company||Market Cap||Wall Street's Projected Annualized EPS Growth Over the Next Five Years||First-Half 2022 Return (Decline)|
|Proto Labs (PRLB -1.72%)||$1.4 billion||25%||(6.8%)|
|Nano Dimensions||$852 million||N/A||(17.4%)|
|3D Systems||$1.3 billion||30%||(55%)|
|Desktop Metal||$712 million||N/A||(55.6%)|
|Markforged (MKFG -1.42%)||$370 million||N/A||(65.6%)|
|S&P 500 / Nasdaq Composite||--||--||(20%) / (29.2%)|
The best and worst performers
Proto Labs stock was the best performer of the 3D printing group in the first half of this year. The company isn't a pure play on 3D printing, as are the others in the table.
Proto Labs is a quick-turn contract manufacturer of prototypes and low-volume production metal and plastic parts. Along with offering 3D printing services, it also offers traditional manufacturing services. In the first quarter of 2022, 3D printing accounted for about 16% of the company's total revenue.
Proto Labs has two big things going for it relative to the other companies in the group. First, it's consistently profitable from a net income standpoint, whereas the other 3D printing companies are not. Second, it has historically generated robust cash flows.
That said, like the other 3D printing players, Proto Labs' results were significantly hurt by the pandemic. This is a quality company and its results have been rebounding, but with a possible recession on the near-term horizon, it might be too soon to consider buying shares.
Markforged stock was the biggest loser of the group. The Boston-area company might be a new name to some investors. It joined the ranks of publicly traded entities via a merger with a special-purpose acquisition company (SPAC) in July 2021.
Markforged created an integrated metal and carbon-fiber 3D printing platform that it calls the Digital Forge. I've not written about this company since it became publicly traded, but I did write about it in late 2017 after a venture capital (VC) funding round, which included significant investments from a Siemens-backed VC firm; Microsoft's VC arm; and Porsche, which is owned by Volkswagen. That article includes an overview of Markforged at that time.
Why did Markforged stock perform so poorly in the first half of the year? I'd speculate that a big reason was the timing of its SPAC merger, which occurred just months before the market began its steady decline. Stocks of unprofitable companies have been particularly hard hit.
Beware of "penny stocks"
Penny stocks are widely defined as stocks that trade for less than $5 per share. Three of the stocks in the above table fall into this category: Nano Dimensions ($3.31 closing price on Tuesday), Desktop Metal ($2.27), and Markforged ($1.97).
"Penny stocks are for short-term traders," as I wrote in my article on Desktop Metal's first-quarter 2022 results. Most long-term investors should stay away from them, as they tend to be extremely risky and volatile. That said, certainly there can be exceptions.
Favor stocks of profitable companies
Given the current market dynamics, most investors should favor stocks of companies that are profitable. In down markets, higher-quality, less-risky stocks tend to hold up better.