Is it Time To Sell These 3D Printing Highfliers?
Additive manufacturing, better known to most people as "3D printing," has drawn plenty of investor attention over the past few years, and 2013 has been no exception. Following red-hot gains and a recent pullback, is it time to get out of the sector, or are things just getting going? Let's take a closer look.
A quick recap
After becoming one of 2012's best-performing stocks, 3D Systems is up more than 95% this year. Yet it's still been outperformed by smaller peers ExOne and Organovo , while Stratasys is up "only" around 40% in 2013 -- even after the pounding that every stock in the sector has taken the past few market days:
The big boys are actually pretty small
In this sector, 3D Systems and Stratasys definitely get the most attention -- and for good reason. Their combined revenue for the past 12 months was almost $900 million. When we consider that 2011's total industry revenue figure was somewhere around $1.7 billion, it's pretty clear that these two companies dominate the space.
Here's a look at the trailing revenue for all four of the companies we're discussing:
Let's take a look at a chart that includes a global industrial giant, General Electric in the mix for a little bit of context:
As dominant as 3D Systems and Stratasys are, you can see how early we are in the game.You shouldn't assume that either Stratasys or 3D systems will be the next GE; after all, it's taken GE more than a century, and massive amounts of diversification and growth in a dozen new industries, to become the global industrial giant that it is today. But the chart above is still a good reminder of just how small the entire industry is.
Can't beat 'em, buy em?
3D Systems is a bit of a serial acquirer, having spent tens of millions of dollars over the past five years adding to both its technological capabilities as well as its distribution footprint via acquisitions. Stratasys, on the other hand, merged with Objet last year, and acquired MakerBot just a few months ago. However, the one thing that hasn't yet happened is an acquisition from a larger player in the manufacturing or tech space.
This could very well change soon, with Hewlett-Packard now making more noise about getting into the 3D printing market by "the middle of 2014," according to CEO Meg Whitman.
While HP has certainly had its share of ups and downs over the past five years, this company still generates more than $100 million in annual sales, and counts its traditional printer business as one of its areas of historical strength. HP's printer division thrives on the same "razor and blades" model that makes 3D printing such an attractive market. With so much viable intellectual property already tied up among the players already on the field, HP could likely buy some player in this segment.
GE, on the other hand, has so far chosen not to develop its own 3D printers. Instead, it's working with existing manufacturers to print and prototype complex parts for things like jet turbines and other aerospace applications.
GE's plans to spin off part of its finance arm are part of a strategy to become less reliant on consumer spending and finance (and the downside that crippled the company in the recent economy), and focus more on its core businesses like manufacturing. While it's likely not on the radar right now, becoming a manufacturer in the fast-growing 3D printing space could become part of GE's plans down the road.
The tiny 3D printer that's not really a 3D printer
Meanwhile, outside the manufacturing sector, one of the industry's hottest new stocks has surprisingly little in common with any of its larger players.
The Fool's Brian Stoffel does a great job explaining what's so intriguing about Organovo -- as well as why it's an incredibly risky investment at this stage. Simply put, Organovo has much more in common with the biotech industry than 3D printers like 3D Systems, or even specialists like ExOne or voxeljet.
Organovo's best bets to date are either continued development of liver tissues for use in humans, a long-term partnership with a larger biotech, or even an acquisition. With no revenues to speak of until its tissue development yields results that pass FDA approval (which could be years from now,) investors will need patience and a willingness to lose their entire investment if they want to get into Organovo.
While it's not worth the effort to plan on any of these players being acquired as part of your investment thesis, don't be surprised if it happens.
With that said, I believe it's probably not worth investing in GE or HP in the specific hope that one of them buys into 3D printing, or develops in-house technology. With the amazing growth ahead, it might be a better strategy to invest in a "basket" of several players to improve your chance of strong returns, while also reducing the downside of backing only one company that turns out to be the wrong choice. Another potential benefit to the "basket" approach: There could ultimately be a lot of winners in this space.
As for selling, unless you're a retiree or living on your investments, I believe selling now would be like walking out of the theater after the previews, but before the main attraction. Wait a decade or so, and then we can talk about selling.
Looking for more on 3D printing? Check this out
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The article Is it Time To Sell These 3D Printing Highfliers? originally appeared on Fool.com.Jason Hall owns shares of 3D Systems, Organovo, and Stratasys. The Motley Fool recommends 3D Systems and Stratasys. The Motley Fool owns shares of 3D Systems, General Electric Company, and Stratasys and has the following options: short January 2014 $20 puts on 3D Systems. 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.