Last month, at the Inside 3-D Printing Conference in New York City, a panel of investing professionals from various backgrounds was assembled to talk about ways investors can gain exposure to the 3-D printing space. While the panel did a good job informing investors about the basics of 3-D printing investing, it failed to address the issue of risk, especially from the perspective of the retail investor. It's important that retail investors understand the following types risks facing every 3-D printing stock before making any investment in the space. Of course, these risks may affect some companies more than others.
- Operational: Internal operational issues can negatively affect a business' performance and stock price. 3D Systems (NYSE:DDD) has made well over 50 acquisitions in the last three years alone, and the company definitely runs the risk of mismanaging how it runs and integrates all of those moving parts. Thus far, 3D Systems has proven it can handle a rapid pace of integration, but investors should continue to watch the company's organic growth rate to determine if 3D Systems is making the right kinds of acquisitions.
- Competitive: With the 3-D printing industry attracting more interest and having recently experienced over 34% growth in 2013, the competition is intensifying. Companies with deep pockets, start-ups, and even governments around the world are stepping up their 3-D printing investments in an effort to get a piece of the action. When Stratasys' (NASDAQ:SSYS) patents around its fused deposition modeling 3-D printing technology expired, it acted as a catalyst that sparked the consumer 3-D printing movement. Ultimately, it led to Stratasys purchasing MakerBot, the leading consumer 3-D printing company as a way to gain an entrance into the consumer segment and defend its market positioning.
- Valuation: 3-D printing stocks are by no means cheap, and they can be extremely volatile at times. Shares of ExOne (NASDAQ:XONE) are down 42% year to date and still trade at a ridiculously high valuation on paper. While ExOne's management has admitted that its transition from catering to foundries to direct manufacturers will likely take time to play out and should ultimately expand its addressable market, investors aren't often known to give emerging growth companies like ExOne the benefit of the doubt.
After taking into account the challenges facing the industry as a whole, as well as a complete understanding of the risks associated with each 3-D printing company, it's time to consider portfolio allocation. Given the overall risks associated with 3-D printing investing, 3-D printing specialist Steve Heller and Motley Fool industrials bureau chief Blake Bos believe a small total allocation may only be warranted for those who can tolerate only the highest degrees of risk.
Steve and Blake both advocate buying a basket of 3-D printing stocks, perhaps comprised of 3D Systems, Stratasys, and ExOne, with the total basket comprising of no more than 5% of an investor's total portfolio. Although 5% may seem like a small allocation, the 3-D printing industry is experiencing rapid change, leading to uncertainty from which companies will ultimately emerge victorious. It's difficult to say whether 3D Systems and Stratasys will remain the biggest names in 3-D printing decades from now or if ExOne can in fact disrupt the foundry industry's business model.
Check out the following video to get more clarity from Blake and Steve on how to approach investing in 3-D printing.
Steve Heller owns shares of 3D Systems and ExOne. Blake Bos has no position in any stocks mentioned. The Motley Fool recommends 3D Systems, ExOne, and Stratasys. The Motley Fool owns shares of 3D Systems, ExOne, 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.