Shares of 3-D printing leaders 3D Systems (DDD 3.54%) and Stratasys (SSYS 1.23%) both hit a 52-week high -- and a new all-time high as well -- earlier this week. Let's look at what's behind their recent movements to better understand what might happen in the future.
How it got here
Since I last covered 3D Systems' roaring stock growth in August, both stocks shrank a bit, only to bounce off a shallow bottom hard in October toward fresh highs, first reached late this month . Although both posted strong third-quarter earnings, with 3D Systems improving on nearly every metric and Stratasys topping the Street's expectations, their rebounds began before these results came in, and they only served to add fuel to the fire. Here's how both stocks have done in the past 52 weeks, compared with recent IPO and similarly positioned rapid-prototyping company Proto Labs (PRLB 0.06%):
DDD Total Return Price data by YCharts
Impressive, isn't it? Consider, however, that nearly every ounce of these gains has been squeezed from ever-larger valuations, which have increased at the same rate as the stock prices:
DDD P/E Ratio TTM data by YCharts
Proto Labs, by comparison, has had a flat P/E since its IPO. Its current valuation is exactly in line with the average valuation it's sported in its short public life .
What you need to know
Now that we've taken a quick look at these three stocks' momentums, let's dig a little bit deeper:
|
Company |
P/E Ratio |
Price to Levered Free Cash Flow |
Net Margin (TTM) |
Projected Growth Rate (2013) |
|---|---|---|---|---|
|
3D Systems |
69.2 |
81.5 |
11.2% |
28.1% |
|
Stratasys |
90.7 |
401.9 |
9.9% |
23% |
|
Proto Labs |
44.1 |
NM |
16.8% |
23.5% |
Source: Yahoo! Finance. NM = not material due to negative cash flow.
None of these companies looks particularly cheap at any rate. All of them sport solid net margins and forward growth rates in the 25% range, but all have high valuations, particularly when examining levered free cash flow.
3D Systems, in particular, has been very aggressively staying in the financial news recently, even when its management would prefer not to. The company just launched two new professional printer models, which was the impetus for its latest big stock surge. Just prior to that, it fended off short-selling allegations that played fast and loose with GAAP accounting standards, and also filed a relatively under-covered patent infringement lawsuit against Formlabs, which uses a technology pioneered at 3D Systems to create a better home 3-D printer. Formlabs claims that the relevant patents are expired, but 3D Systems believes it owns some current patents that Formlabs infringes.
What's next?
If you're reading this, you're probably well aware of the transformative promise of 3-D printing. You're far from alone. Millions of investors have been introduced to this technology's potential over the last couple of years, and this enthusiasm must be credited for a large part of both 3D Systems' and Stratasys' stock price growth. The underlying financials could still go parabolic to meet this enthusiasm, but investors will also need to keep aware of the possibility that any disappointment will be amplified on the downside, just as excitement has thus far amplified the upside.
