Considering Investing in 3-D Printing Stocks in 2014? Then Don't Miss These 6 Key Areas
You've probably heard of 3-D printing because this hot topic has made its way from the financial news to the more mainstream press. You might know that two U.S. companies, 3D Systems and Stratasys , are the two biggest players in this sector; perhaps you've even heard of ExOne , Arcam , and voxeljet .
If that's about where your knowledge of 3-D printing as a possible investment ends, this article is for you.
3-D printing in a nutshell
Briefly, 3-D printing is an additive-manufacturing technology, because it builds up a component layer by layer. By contrast, traditional manufacturing is subtractive by nature, as it involves whittling away at a chunk of material to fabricate the desired component.
There are a good number of 3-D printing technologies, though their commonality is that they all involve heating, and often melting, the material to be printed. Most of these technologies use a laser to accomplish this, though there are also other methods, such as using an electron beam.
What are some key reasons why investors might consider investing in 3-D printing?
In one word: growth. This is a disruptive technology, with the sector projected to grow 20%-30% annually over the next five years. These estimates could prove too conservative, as market researcher Gartner recently projected that worldwide shipments of 3-D printers priced under $100,000 will grow 49% in 2013, 75% in 2014, and nearly double in 2015. Given that industrial bigwigs, most notably aerospace players such as General Electric and Boeing, are now using, or planning on using, 3-D printing for actual production (rather than just prototyping), look for the higher-end printer models to experience incredible growth, too.
There are two key reasons for 3-D printings' turbocharged current and projected growth rates: cost savings from greater efficiency, and increased innovative possibilities. The cost savings are primarily driven from using less material, and when we're talking pricey exotic metals, such as titanium, which is widely used in the aerospace industry, these savings can be considerable. Increased innovation is made possible because 3-D printing allows for designing and producing some products that can't be made using traditional manufacturing processes.
Naturally, the projected high-growth rates make this an attractive space, so there surely will be new entrants, which means competition will further heat up. Hewlett-Packard, for instance, has already announced its plans to offer a 3-D printing product by mid-2014; it's likely that other big companies will follow.
What are some key reasons why investors might not want to invest in this sector?
In one word: risk. If losing 10% or more of your investment in one day, or the possibility of losing a fair chunk of your entire investment in a short time, would cause you stress, you should not invest in this sector.
More specifically, 3-D printing stocks have very high valuations (price-to-sales and price-to-earnings ratios) and betas.
Beta is a relative measure of stock-price volatility, with the overall stock market having a beta of 1.0. The two leading companies, 3D Systems and Stratasys, have betas of 1.6 and 2.0, respectively. So the former has been about 60% more volatile than the overall market, while the latter about twice as volatile.
How many pure-play 3-D printer manufacturers are there?
There are five pure-play 3-D printer manufacturers trading on U.S. stock exchanges, to my knowledge: 3D Systems, Stratasys, ExOne, Arcam, and voxeljet. (I'm excluding more speculative tiny companies, as well as Organovo Holdings, which "bioprints" human cells to produce tissues, because it's a biotech play.)
All but Arcam are listed on major exchanges. Arcam trades on the OMX Nasdaq in Stockholm, though it can also be bought over the counter in the U.S. It's thinly traded, which means that it can be extra volatile.
Are there any key things I should know about these pure plays?
There are a few, but we'll keep it to the biggies. First, 3D Systems and Stratasys are the first movers in the group. In general, companies that are first movers -- meaning first to enter a new market, which often involves creating the market, too -- have a long-term competitive advantage. Of course, this is a generalization, and first movers can fall by the wayside, too.
Second, these companies don't all have the same target markets. 3D Systems has the broadest product lineup, offering consumer, commercial, and industrial printers. Stratasys also targets consumers and commercial entities; its lack of metal printing capabilities means it's less of a player on the industrial end. Voxeljet makes printers for commercial and industrial uses, while ExOne and Arcam focus solely on the industrial market.
Do the five pure plays have operations other than making 3-D printers?
Yes. All except Arcam also have "service centers," where customers' components are produced to their specifications by 3-D printers. ExOne's and voxeljet's service operations account for the largest percentage of their respective overall revenue, with voxeljet's as high as about 50%. But that could change as these companies grow and sell more printers.
Additionally, both 3D Systems and Arcam recently acquired materials suppliers. 3D Systems bought ceramics and thermoplastics suppliers, and Arcam purchased a metal powder company.
Is there another way to invest directly in the 3-D printing sector?
Yes, there are several, but we'll stick to the main one. You could invest in companies that make the design software used in the 3-D printing process.
There are two major companies in this arena: France-based Dassault Systemes, and U.S.-based Autodesk. But it's important to note that neither are pure plays, as both make software for other applications, too.
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The article Considering Investing in 3-D Printing Stocks in 2014? Then Don't Miss These 6 Key Areas originally appeared on Fool.com.Fool contributor Beth McKenna 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 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.