This article was updated on Jan. 25, 2016.
The market has been crushing 3D printing stocks for about two years. Since the start of 2014, 3D Systems (NYSE: DDD), Stratasys (NASDAQ: SSYS), ExOne (NASDAQ: XONE), Arcam (NASDAQOTH: AMAVF), voxeljet, and Materialise (NASDAQ: MTLS) are down 93%, 88%, 88%, 46%, 90%, and 49%, respectively. (Materialise has only been public since mid-2014.)
We're going to revisit the group's valuations. Since valuations mean nothing in a vacuum, we're also going to look at a metric that takes projected growth rates into account to see if any of these stocks look potentially attractive. Keep in mind that our findings will be based on a limited number of metrics and no qualitative factors, which are as important as quantitative ones.
3D printing stocks' valuations
| Company | Market Cap | Price/Sales | P/E | Forward P/E | 5-Year PEG |
|---|---|---|---|---|---|
| 3D Systems | $782 million | 1.2 | N/A | 25.9 | 4.5 |
| Stratasys | $875 million | 1.2 | N/A | 56.0 | (7.4) |
| ExOne | $108 million | 2.7 | N/A | N/A | (0.2) |
| Arcam | $405 million | 6.5 | 85.2 | N/A | N/A |
| voxeljet | $77 million | 2.9 | N/A | N/A | N/A |
| Materialise | $280 million | 2.5 | N/A | N/A | N/A |
Data sources: Yahoo! Finance and YCharts; data as of Jan. 25, 2016.
3D Systems and Stratasys
As we entered 2014, 3D Systems' P/S, P/E, and forward P/E were 21.0, 209, and 75.3, respectively. And as we entered 2015, those numbers dropped across the board to 5.8, 158.4, and 30.2. (The company no longer has a trailing P/E, since it wasn't profitable on a trailing-12-month basis.) At the start of 2014, Stratasys' P/S and forward P/E were 16.3 and 58.3, respectively; at the start of 2015, those numbers were 5.8 and 25.7. (As is still the case, Stratasys didn't have trailing P/Es because it wasn't profitable on a trailing-12-month basis.)
The P/S ratio has continued to fall for both companies through to the present, while their forward P/Es have each increased, as the chart shows. The latter suggests the stocks are more richly priced than they were a year ago, while the former suggests they're a better value. The P/E is a more meaningful metric than the P/S when a company has earnings, because changes in earnings, not sales, are what ultimately drive stock prices over the long run.
Looking at these metrics in a vacuum is not very telling. We need to look at valuations along with future growth estimates, which have also come down a lot. A simple metric that takes one key future growth estimate into account is the five-year PEG. (The PEG is the P/E divided by future growth estimates -- in this case, for the five-year period.)
3D Systems' five-year PEG has gone up since the start of 2015, as it was 2.0 a year ago. This tells us that despite the stock's drop in price over the last year and its lower P/S ratio, it's now even less attractively priced than it was at the start of 2015 based upon its projected growth prospects five years out.
MakerBot Replicator. Image source: Stratasys.
Stratasys' case is even worse, as its five-year PEG is now negative, which means that analysts don't expect it to be profitable in five years. It had a very attractive five-year PEG of 1.5 as we entered 2015. The MakerBot implosion is surely a big factor. The desktop 3D printer unit's plummeting sales and the massive goodwill impairment charges that Stratasys took for it in 2015 have significantly negatively affected Stratasys' financials. Additionally, both Stratasys and 3D Systems encountered a broad-based decline in demand for their enterprise 3D printers throughout 2015; Stratasys attributed this slowdown to overcapacity in the field due to the large number of 3D printers purchased during the previous few years.
The five-year PEGs suggest that analysts believe that profitability (whether on a generally accepted-accounting-principles [GAAP] basis or on an adjusted basis) is further down the road for Stratasys than 3D Systems. Stratasys, however, remains the better company of the two, in my view. That's largely because Stratasys has generally executed better than 3D Systems over the past couple years, and hasn't relied on acquisitions to fuel most of its growth. However, 3D Systems has a chance to reinvent itself once a new CEO comes on board, so my opinion could change in the future. (Former CEO Avi Reichental abruptly left the company last October.)
The caveat is that the five-year PEG is based on future estimates -- and estimates don't always pan out.
Arcam and ExOne
The smaller players sport higher P/S ratios than the two larger ones. This is typical, as it's easier for smaller companies to grow on a percentage basis because their base numbers are smaller. Arcam's P/S jumps out because it's considerably higher than the others. However, that's largely because Arcam's price has been bid up more relative to the others (more accurately, it's dropped less than the others since the group peaked about two years ago) because it's profitable. In fact, it's the only company that's profitable on a trailing-12-month basis, which is why it's the only one with a P/E.
The Q20 for aerospace parts production. Image source: Arcam.
Arcam had a P/E of 55.3 at the start of 2015, so its P/E has increased by more than 50% in the last year. So, from a strictly P/E standpoint, it looks somewhat less attractive now than a year ago. We can't take future growth estimates into account, because they don't exist. Arcam's a foreign-based company (Sweden) that trades over the counter in the United States, so it gets little analyst coverage. The company -- which is an industrial-metals pure play -- has been performing well and had a solid backlog at the end of the last quarter. So there's no reason for now to believe its future earnings estimates don't look bright.
ExOne sports a negative five-year PEG, so analysts don't foresee profitability in the next five years. Moreover, the industrial-focused company's cash burn rate remains a red flag. At the end of last quarter, it had $20.3 million in cash, while its operating cash flow for the trailing 12 months was a negative $15.3 million. The company projects the burn rate to slow, but its projections have been inaccurate since it went public, so investors should continue to be cautious.
We don't have adequate numbers to make meaningful comments about Belgium-based Materialise or Germany-based voxeljet. Materialise had a five-year PEG of negative 4.1 last September, which means that at that time analysts didn't expect it to be profitable five years out. There's no longer a five-year PEG assigned to the company, which probably means that analyst coverage decreased. Materialise is unique among the 3D printing group -- it's the only company that doesn't manufacture 3D printers; it's a leading provider of 3D printing software and printing services.
Final thoughts
Arcam is the only one of these stocks that looks potentially attractive at this time. Notably, it's the only one in the group that's profitable. However, from a strictly P/S and P/E basis, it looks relatively less attractive than it did a year ago. (Unfortunately, we don't have five-year PEGs for Arcam, which would be quite helpful in this analysis, as we'd be able to take into account its future projected growth.)
The other companies discussed look less attractive now than they have in the recent past despite their continued drops in prices. At least some of them are most likely value traps.
The caveats here are that this is a limited analysis based upon just a few quantitative metrics. Additionally, qualitative factors are equally important -- and the biggest one to consider is future competition. Notably, HP Inc. and well-funded start-up Carbon3D both plan to bring an enterprise-focused 3D printer to market in 2016.
