The end of the year is a great time for investors to look back on their investments. While it may not be a solid indication of what to expect in the coming year, it does lend perspective. Today, let's take a look at Stratasys (NASDAQ:SSYS). In 2012, both Stratasys and its major competitor, 3D Systems (NYSE:DDD), were the darlings of Wall Street, with stock prices for the two companies jumping 157% and 247%, respectively.
The year that was 2012 for Stratasys
If you are a casual follower of the news, then you probably heard the story of a group of designers building a gun using a 3-D printer. What, you may not have heard in the story is that Stratasys was the manufacturer of the printer used to build that gun. Probably not the media attention the company had hoped for, but it certainly brought the concept of 3-D printing to the forefront of the public's attention.
What is probably more important news for Stratasys investors in 2012 was the merger with Israel-based competitor Objet. The merger, which was completed earlier in December, puts the value of the combined company at about $3 billion. As part of the merger deal, Objet CEO David Reis will take the reigns as CEO while former Stratasys CEO Scott Crump will move on to be the executive chairman of the board for the new combined company. The deal not only expands the geographic reach of the company, but the two company's technology advantages complement each other well and could make for a formidable force in the 3-D printing market.
While the company is hoping for an even more promising future in its new form, 2012 also saw the end of Stratasys' two-year relationship with Hewlett-Packard (NYSE:HPQ). Stratasys announced back in August that it will no longer be manufacturing 3-D printers for HP. Much of the financial benefit for the HP deal was for printers in Europe. Since the company was anticipating the merger with Objet, which has a stronger presence in Europe, the deal with HP was a bit superfluous.
What a Fool believes
Some analysts see the valuation for 3-D printing companies and believe stock prices are starting to hint at a possible bubble. If this were to prove true, these analysts may be able to pat themselves on the back, but it doesn't necessarily change the fundamental investment theory for the company. For Foolish investors who are thinking for the long term, a popped bubble might simply be a temporary scar on an otherwise stellar stock. Let's look at the basics of Stratasys and see if the company is worth a long term investment.
Emerging industry: check. You don't have to be a design nerd or a hobbyist to be excited about the potential for 3-D printing anymore. 3-D printing technology has now come to an age where fully functional tools and exoskeletons are made with these devices. While it may be difficult to imagine the full potential of 3-D printing right now, don't be surprised if it becomes a part of everyday life.
Increasing top and bottom line: check. This year, Stratasys is on track to double its total revenue from 2009. Over that same time frame, net margins for the company have climbed from 4.1% to 13.2%. Looking forward to 2013, estimates for the new Stratasys/Objet predict next year's revenue will double again. With margins and revenue growing at this kind of pace, it appears that the company has learned to print money (pun intended) as well.
Clean balance sheet: check. To bring a company to profitability can be a daunting task in itself, but it is a rarity to see a company like Stratasys do it without taking on long-term debt or performing large stock reissuances. There will be a clearer picture once the company reports earnings as a combined entity, but there were no large debt or equity issuances to finance the merger. If the company can continue to grow while keeping a clean balance sheet, it could indicate good things for Stratasys investors.
Overall, it appears that Stratasys has the chops to be a major player in the 3-D printing space for a while. Granted, this is still a wild and developing industry, so there is a chance that major rival 3D Systems or some upstart could disrupt the space. But based on the recent performance of the company and the prospects for 3-D printing in the future, Stratasys may be ready to live up to that high valuation.
Fool contributor Tyler Crowe owns shares of Stratasys. You can follow him on Fool.com under TMFDirtyBird, at Google +, or on Twitter @TylerCroweFool.
The Motley Fool owns shares of 3D Systems and Stratasys and has the following options: short JAN 2014 $55.00 calls on 3D Systems and short JAN 2014 $30.00 puts on 3D Systems. Motley Fool newsletter services recommend 3D Systems and Stratasys. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.