As a group, 3D printing stocks beat the overall market last year, and are also outperforming so far in 2019. This is a big change from the longer-term story, as these stocks largely got clobbered in the few years following their huge price run-ups in 2012 and 2013.
While there will likely be more volatility ahead in this space, long-term growth projections for the 3D printing sector remain attractive. The technology is widely expected to disrupt -- or continue to disrupt -- the traditional manufacturing sector, as 3D printers get faster and material availability expands.
So which is the best 3D printing stock?
Image source: Getty Images.
3D printing stocks
There are four stocks that we could consider "3D printing stocks" that have market caps greater than $200 million and trade on a U.S. stock exchange. All except Proto Labs are pure plays on 3D printing.
| Company | Market Cap | Forward P/E* | Wall Street's Projected Average Annual EPS** Growth Over the Next 5 Years | 1-Year Return | 4-Year Return*** |
|---|---|---|---|---|---|
| Proto Labs (NYSE:PRLB) | $3.3 billion | 35.7 | 20% | 13.9% | 97.7% |
| 3D Systems (NYSE:DDD) | $1.3 billion | 47.2 | 10% | 7.4% | (60.6%) |
| Stratasys (NASDAQ:SSYS) | $1.1 billion | 36.1 | 27.8% | (6.6%) | (70.7%) |
| Materialise (NASDAQ:MTLS) | $921 million | 103.5 | 63.9% | 35.4% | 77.9% |
| S&P 500 | -- | -- | -- | (2.7%) | 43.7% |
Data sources: Yahoo! Finance and YCharts. Data to Jan. 18, 2019. *P/E = price-to-earnings ratio. ** EPS = earnings per share. ***Longest possible whole-year comparison period because Materialise has only traded since June 2014. Returns that have beaten the broader market are boldfaced.
Proto Labs and Materialise are currently profitable on a trailing-12-month basis, while 3D Systems and Stratasys are not.
Proto Labs: The best 3D printing stock
Check out the latest Proto Labs earnings call transcript.
Proto Labs is a technology-enabled, quick-turn manufacturing service provider. It was founded in 1999 and went public in April 2012. The Minnesota-based company uses both traditional manufacturing techniques and 3D printing to produce custom plastic and metal prototypes and short-production-run parts. It services a wide variety of customers operating in the United States, Europe, and Japan.
Along with a reputation for doing quality work and being very customer-focused, Proto Labs' biggest competitive advantage is its turnaround speed. The company's speedy services help its customers develop new products faster -- which means they can bring them to market more quickly.
Proto Labs is not a pure play on 3D printing, which could be a benefit if the technology doesn't grow as fast as expected. The following chart shows its revenue breakdown by service segment for the first three quarters of 2018.
| Manufacturing Service | Revenue First Nine Months of 2018 | Change (YOY) | Percentage of Total Revenue |
|---|---|---|---|
| Injection molding (Protomold) | $156.6 million | 9% | 47% |
| CNC machining (Firstcut) | $115.4 million | 57% | 35% |
| 3D printing | $39.4 million | 23% | 12% |
| Sheet metal* | $19.0 million | 100% | 6% |
| Other | $2.4 million | 226% | less than 1% |
| Total | $332.8 million | 33% | 100% |
Data source: Proto Labs. YOY = year over year. *New category stemming from the acquisition of Rapid Manufacturing in Dec. 2017.
Proto Labs has been posting strong financial results. In the third quarter, revenue and earnings per share (EPS) jumped 31% and 57%, respectively, year over year. EPS adjusted for one-time items rose 54%. The company has beaten Wall Street's consensus earnings estimate in all three reported quarters of 2018, suggesting that it could grow earnings over the next five years faster than the 20% average annual rate the Street is expecting.
Materialise: The runner-up for best 3D printing stock
Belgian-based Materialise provides 3D printing software and on-demand 3D printing services. It has a good-sized medical business, which spans both services and software, though also has customers across various other industries.
Like Proto Labs, it doesn't manufacture 3D printers, as do the largest 3D printing pure plays, 3D Systems and Stratasys. This can be an advantage for several reasons, including that the 3D printer business has become ultra competitive in recent years with the entrance into the market of deep-pocketed HP, well-funded start-up Carbon, and others.
Other things to like about Materialise include:
- It's run by founder Wilfried Vancraen. Studies suggest that stocks of companies led by founders outperform in the market.
- Its sizable software business sports juicy margins.
Its sky-high valuation -- it has a forward price-to-earnings ratio of 104 -- means Materialise stock is only worth considering if you're an investor comfortable with considerable risk.
What about 3D Systems and Stratasys?
3D Systems and Stratasys both have some top intellectual property and have been developing compelling new technologies. However, their respective management teams need to demonstrate they can execute better. To be fair, there have been a lot of top management changes in both companies over the last several years, so the executives who fumbled on execution are mostly no longer around. (Note that Stratasys doesn't currently have a permanent CEO.)
Proto Labs has been executing well with the same top management team that has been in place for several years. Vicki Holt has been CEO for five years, and CFO John Way had held the top financial spot for four years. Both have garnered various professional honors, with Way recently named the 2018 CFO of the Year by the Minneapolis/St. Paul Business Journal.
Investors will be getting material news about Proto Labs soon: The company is scheduled to report Q4 and full-year 2018 results before the market open on Thursday, Feb. 7.
