The 2 Best 3D Printing Stocks for 2015

This article was updated on June 8, 2015.

There's no guarantee that 3D printing stocks, which had a painful year in 2014 and continue to struggle in 2015, will soar again. However, if you believe, as I do, that the industry's torrid projected growth dynamics -- industry expert Wohlers Associates projects an average annual growth rate of more than 31% through 2020 --  make it likely that there will be at least one winner among the current players, how do you decide which company to invest in?

A good strategy for investing in 3D printing stocks is to buy more than one. That's because it's very difficult to know which existing company in any fast-growing technology space will emerge a winner -- or even still be standing -- in the future. I'm not suggesting you invest more than you'd usually invest in a single stock, but simply divvy up what you'd usually invest in one stock.

Three stocks would probably be a good number. However, there are just two stocks among the "pure plays" (companies that derive all their revenue from 3D printing) that I have a fair amount of confidence in at this time. So I'm not going to choose a third simply for the sake of diversification. 

The pure-play 3D printing stocks

There are six pure-play 3D printing stocks that trade on U.S. stock exchanges:

Data source: Yahoo! Finance; data as of June 8, 2015.

Best 3D printing stocks: Stratasys and Arcam

I continue to believe that Stratasys is the best larger, diversified stock, and Arcam is tops among the smaller players. 

Stratasys: The best large, diversified 3D printing company
Stratasys and 3D Systems were co-first-movers and are by far the largest and the most diversified among the 3D printing companies. Oftentimes, first movers in an industry have a sustainable competitive advantage. Both companies have their proponents and strong points, though I continue to favor Stratasys.

Objet500 Connex3 multi-material 3D printer. Source: Stratasys.

Stratasys has generally executed better than its prime competitor since 2014, despite troubles with its desktop 3D printer unit MakerBot in the last two quarters. (MakerBot posted weaker than expected revenue, and Stratasys took goodwill impairment charges of $102 million and $194 million, respectively, for the unit.) Stratasys' general relative outperformance is largely due to its more focused and less acquisitive approach to growth, in my opinion. Stratasys focuses its efforts on three distinct 3D printing technologies, whereas 3D Systems has seven. Before last year, when both companies ramped up their growth games, Stratasys had only made one notable large acquisition (MakerBot, 2013); it was also involved in one merger (Objet, 2012). Objet and MakerBot were both considered best-in-class when Stratasys came a-courting. Meanwhile, 3D Systems has gobbled up more than 50 mostly smaller companies in the past three or four years.

Growth-via-acquisitions strategies can be tricky to pull off well over the long term. It's nearly impossible for a company's top management to be involved in constant acquisitions without sacrificing some attention to nurturing existing businesses. Additionally, the greater the number of acquisitions, the greater the potential for lack of synergy with existing businesses and conflicts among corporate cultures. 

Organic revenue growth (revenue growth in businesses that have been owned for at least one year) is a key metric to monitor for companies that are growing at least partially by acquisitions. Robust organic growth is also often reflective of a successful research and development program, which means a company isn't just relying on constant new acquisitions for growth.  

This isn't to say that 3D Systems doesn't have its strengths. One strong point, for instance, is that the company has sold out of metal 3D printers in every quarter since it acquired Phenix Systems in the summer of 2013.

Arcam's Q20 for series production of aerospace parts. Source: Arcam.

Arcam: Electron-beam-focused on the industrial metals niche
Arcam makes printers that use its proprietary electron beam melting, or EBM, technology, to produce metal components. The Sweden-based company targets customers in the medical implant and aerospace industries.

Since Arcam's tech is patent-protected, any entity that wants a new 3D printer that uses EBM technology has to buy it from Arcam.   

Unlike fellow smaller companies ExOne and voxeljet, Arcam is currently profitable. Overall, the company executed well in 2014, and also had a decent first-quarter 2015. Arcam's strong order backlog of 20 EBM systems at the time it reported its Q1 results bodes well for the near future.