Shares of Stratasys (Nasdaq: SSYS) hit an all-time high yesterday. Let's take a look at how it got here to find out whether there are still clear skies ahead.
How it got here
Stratasys was one of the market's biggest movers yesterday, but the reasons remain murky. I doubt shareholders are complaining about their 13% gain, which once again gives Stratasys a clear lead in this year's share-price race over 3-D printing rival 3D Systems (NYSE: DDD), which has been hitting 52-week highs of its own all year as well:
SSYS Total Return Price data by YCharts
The performance of the companies leading the 3-D printing charge stands in stark contrast to those whose businesses rely on practically commoditized ink-and-paper printers. Leading that synchronized flop is Lexmark (NYSE: LXK), which saw its shares tank this month after releasing weak guidance.
Stratasys, for its part, has been in the midst of a compelling industry-consolidation battle with 3D Systems. 3D Systems has made a number of small-to-midsize acquisitions in recent years, gradually bolstering the scope of its offerings. To answer that challenge, Stratasys dove right into the deep end by merging with Objet, which had been a sort of de facto No. 3 in the small 3-D printing industry. Investors have been understandably excited about this competition, since this new alignment could easily capture half of the entire 3-D printing market.
What you need to know
The difference between 3-D printing companies and old-fashioned printer makers couldn't be starker. The twin titans of 3-D are richly valued, but have backed that up with impressive growth rates and strong net margins for a hardware manufacturing enterprise. Lexmark and its peers, on the other hand, are priced like they've already got one foot in the grave:
|
Company |
P/E Ratio |
Price to Free Cash Flow |
Net Margin (TTM) |
3-Year Annualized Income Growth |
|---|---|---|---|---|
| Stratasys | 63.0 | 133.3 | 12.1% | 71% |
| 3D Systems | 52.7 | 45.0 | 13.4% | 227.1% |
| Lexmark | 5.1 | 6.1 | 7.2% | 26.9% |
| Hewlett-Packard (NYSE: HPQ) | 7.5 | 7.9 | 4.2% | (12%) |
| Xerox (NYSE: XRX) | 8.0 | 6.7 | 5.7% | 16% |
Source: Morningstar. TTM = trailing 12 months.
The three paper-printing companies saw extreme price-to-earnings compression over the past half-decade as the market shifted its attentions to the hotter (and more versatile) 3-D printing industry:
LXK P/E Ratio data by YCharts
HP had a chance to regain relevance when it partnered with Stratasys two years ago. That alliance went nowhere, as the "entry level" machines cost nearly as much as a compact car and were only offered in Europe. Xerox hasn't been relevant in a long time. Investors were once as keen on these companies as they are on Stratasys today -- something to keep in mind for the future.
We're still very early in this industry's growth phase, so it's not fair to anticipate it becoming old hat already. However, just because a market has boundless potential doesn't guarantee that any company will claim a big piece of it.
What's next?
Stratasys hasn't suffered any real downturns in a long time. Every stock falls eventually, but the best companies can push themselves through weaknesses to reach even greater heights. If you believe that Stratasys has a strong case for long-term growth, its high-flying ways shouldn't turn you off today.
The Motley Fool's CAPS community certainly believes in Stratasys. Our community's given the stock a perfect five-star rating, with 95% of our CAPS players expecting the company to keep heading higher.
Interested in tracking this stock as it continues on its path? Add Stratasys to your Watchlist now, for all the news we Fools can find, delivered to your inbox as it happens. For more great info on 3-D printing, including the name of another competitor with a lot of potential, grab your free copy of our most popular research report: "The Future Is Made in America."
