This article was updated on April 3, 2015.
If you realize that the market has been walloping 3D printing stocks since early last year, yet you still believe in the long-term potential of this high-growth space, how do you decide which company to invest in?
The best way to invest in 3D printing stocks is to buy several of them, in my opinion. That's because it's really difficult to know which existing company in any fast-emerging technology space will ultimately emerge a winner -- or even still be in the game, for that matter -- in the years to come. I'm not suggesting investing more than you would normally invest in any one stock, but to divvy up what you'd usually invest.
There's no "right size" basket of 3D printing companies to own, as certainly the amount you have to invest will help drive that decision. However, we're going to use three here, as two is hardly diversified, and buying more than three is probably out of reach for many investors.
There are six pure plays (meaning these companies derive all of their revenue from 3D printing) that trade on U.S. stock exchanges:
|Company||Market Cap||Annual Revenue (Millions)||Business/Focus|
|3D Systems (NYSE:DDD)||$3.1 billion||$653.7||3D printers; 3D printing services. Consumer, commercial, industrial focus.|
|Stratasys (NASDAQ:SSYS)||$2.7 billion||$750.1||3D printers; 3D printing services. Consumer, commercial, industrial, educational focus.|
|ExOne||$200 million||$43.9||3D printers; 3D printing services. Industrial focus.|
|Arcam (NASDAQOTH: AMAVF)||$341 million||$39.4||3D printers; 3D printing services (limited). Industrial focus.|
|voxeljet||$148 million||$17.6||3D printers; 3D printing services. Commercial and industrial focus.|
|Materialise||$329 million||$88.1||3D printing software; 3D printing services. Commercial, industrial, and (new) consumer focus.|
(Organovo Holdings isn't included, as it's a speculative biotech play. It's a tissue engineering company that 3D-prints human cells to produce tissues.)
3 Best Stocks to Invest In: Stratasys and Arcam -- and one non-pure play of your choice
Stratasys and Arcam are the two best 3D printing stocks, in my opinion. I'll explain my reasoning, but don't take my or anyone's word for which stocks are best suited for your individual situation. It's best to gather a few different viewpoints and then make your decision. The other pure plays are currently second tier, in my view, so investors wanting a third stock in their basket should consider going with a non-pure play, which we'll get to in a moment.
Stratasys: The diversified leader that's executed the best
Stratasys and 3D Systems are the two leaders in the industry. They were co-first-movers and are the largest and the most diversified among the 3D printing companies. One or both of these companies are "must-owns" for anyone looking for exposure to the 3D printing space. They both have their strong points, though I favor Stratasys primarily for its growth dynamics and the fact that it executed better than 3D Systems in 2014.
Both companies ratcheted up their growth games starting last year. Prior to 2014, however, Stratasys made considerably fewer acquisitions than 3D Systems. It favored acquiring (or merging with) large, best-in-class businesses. Cases in point: its 2012 megamerger with Objet and its 2013 acquisition of MakerBot, which produces desktop 3D printers that are popular with "makers," or 3D printing hobbyists.
Stratasys was firing on all cylinders in the first three quarters of 2014, with organic revenue growth -- which includes growth from businesses owned for at least one year -- of 33%, 35%, and 35%, and everything else was also seemingly humming along. Execution momentum came to a halt in the fourth quarter, however, because of MakerBot. The unit's year-over-year revenue growth slowed considerably to 7%, primarily due to quality issues related to faulty extruders on its fifth-generation Replicator released last year. Additionally, Stratasys took a $102 million goodwill impairment charge for MakerBot, which means that the company overpaid for this acquisition. While this is disappointing, Stratasys nonetheless still printed robust organic revenue growth of 26%, thanks to continued strong demand for its enterprise-focused offerings. By comparison, 3D Systems' organic growth rates for the four quarters last year were 28%, 10%, 12%, and 7%.
As for 3D Systems, it doesn't seem humanly possible for any company to seamlessly incorporate more than 50 new companies into its fold in about four years without sacrificing some attention to nurturing its existing businesses. While we can't be certain, it seems likely this factor was one main reason behind the company's tepid organic growth rates in the last three quarters of 2014.
Arcam: Profitable pure play on industrial metals niche
This choice is probably one on which you'd get widely varying opinions, as we're left with four companies that are each considerably smaller and more specialized than the leaders. Keep in mind that their specialization increases their risk level.
I'm selecting Arcam because it's the only small company that's both fast-growing and currently profitable, and, more important, it appears to have the best intermediate-term prospects. (It's impossible for anyone, in my opinion, to gauge which company has the best long-term prospects at this point. Besides, success in the long term begins with success in the intermediate term.)
Arcam makes printers that use its proprietary electron beam melting, or EBM, technology, to produce metal components. It targets customers in the medical implant and aerospace industries. Demand for 3D printers that can print in metals is in the relatively early stages, and it seems we're on the cusp of an incredible growth trajectory as 3D printing makes its way into more manufacturing applications.
Arcam's 2014 results were strong, with total revenue growing 70%, including organic growth of 40%, and adjusted earnings per share jumping 125%.
The company's stock is listed on the Nasdaq OMX Sweden; however, it can also be bought over the counter in the United States. Be aware that it's a very thinly traded stock, which means it can be highly volatile. Additionally, since all of Arcam's eggs are in one technology basket, investors need to keep an eye on Arcam's order intake situation. A slowing of orders could signal that one or both of Arcam's two markets are favoring other metal 3D printing technologies -- such as laser sintering -- over EBM.
I don't disagree with those who believe ExOne has considerable potential. However, I didn't select it for my top two because I think its change in strategy is going to take longer to execute than many believe, and I haven't yet seen enough tangible signs that it's likely to ultimately be successful. I didn't select Materialise as it just went public in June, so it has too limited a history as a public company. Voxeljet, which went public in October 2013, has also yet to prove itself.
Possibilities for stock No. 3: Proto Labs or a 3D printing software maker
Investors open to choosing a non-pure play as their third 3D printing stock might consider one of the major 3D printing software makers, Dassault Systemes or Autodesk, or quick-turn, on-demand manufacturer Proto Labs (NYSE:PRLB). Proto Labs traditionally used conventional manufacturing -- CNC machining and injection molding -- but expanded into 3D printing when it bought Fineline Prototyping in April 2014. In the fourth quarter 2014, 3D printing accounted for 6.9% of the company's total revenue -- and this percentage should grow.
I lean toward choosing Proto Labs to round out our best three 3D printing stocks. The company's $1.9 billion market cap makes it considerably smaller than Dassault and Autodesk, so there's plenty of room for growth. It posted strong 2014 revenue growth of 28.5%, coupled with solid GAAP and non-GAAP EPS growth of 17.6% and 17.7%, respectively. And there's a lot to like about its fat GAAP operating margin of 29% and solid insider ownership of 12%.