"While the growth in our high-end system business may seem to defy conventional expectation given the current economic environment, this performance reflects our successful new product and marketing strategies which target new applications for direct digital manufacturing (DDM)."

That assessment, cribbed from CEO Scott Crump's Q3 rundown at Stratasys (NASDAQ:SSYS) Monday, probably wasn't directed at me -- but it might as well have been. Three months ago, I questioned the wisdom of Stratasys switching its business model to pursue the high-end DDM market. I argued that a razor-and-blade business like Stratasys would be better served by putting large numbers of low-end machines in the hands of its customers, rather than milking them for ever more "proprietary consumable and maintenance" revenues.

I was wrong.

As yesterday's earnings report revealed, this Motley Fool Rule Breakers pick is getting along just fine by taking the high road on DDM -- more than fine, actually. Because as it turns out: "our high-end systems ... traditionally operate at significantly higher rates of consumable usage. For example, the FDM 900mc, our largest and fastest high-end system, will annually consume over 10 times the material consumed by the average 3D printer in a year." (Gee, now you tell us!)

This explains why, in spite of a 5% decline last quarter in the number of 3D "printers" shipped to customers like Hewlett-Packard (NYSE:HPQ), Nike (NYSE:NKE), Intel (NASDAQ:INTC), and Toyota Motor (NYSE:TM), Stratasys managed to grow revenue 16%, and earnings per share 20% (to $0.18). 3D printer revenue may have been "flat over last year," but "[c]onsumable revenue for the third quarter grew by 20% over last year."

So, um, it would appear that management knows what it's doing after all. (My bad.) Now that it's demonstrated this, I'd say Stratasys's prediction that it will end fiscal 2008 with $125 million to $130 million in revenue and $0.75 to $0.80 EPS deserves the benefit of the doubt. (Especially seeing as we're only a few weeks away from said year-end.)

Foolish takeaway
These numbers work out to about 14% sales growth and 17% growth in profits over fiscal 2007. To me, that seems a bit slow for a putative "rule breaker," and I have to admit, I wouldn't mind seeing the company generate a bit of free cash flow to back up those GAAP earnings. (For the time being, management only claims to be "generating positive cash flow from operations" (emphasis added).)

That said, the 17 P/E that Stratasys will carry if it hits its numbers looks just about right for a 17% grower. Tune in tomorrow, and we'll see if rival 3D Systems (NASDAQ:TDSC) can do as well.

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Fool contributor Rich Smith does not own shares of any company named above. Intel is a pick of Inside Value, and The Fool owns some shares. The Motley Fool has a disclosure policy.