What Is the Best 3-D Printing Investment?
Additive manufacturing is all the rage these days. Shares of 3D Systems have been on tear, having risen over 200% since its IPO. Investing in this space may seem scary for value investors, but the future of 3-D printing offers the promise of changing the way the world operates. This is what's known as an industry disruptor; it takes conventional methods and renders them obsolete. If all goes according to plan, 3-D printing will change the way society manufactures everything, and investing early on may lead to life-changing returns. Aside from 3D Systems, the other big player is Stratasys , which focuses primarily in the high-end 3-D printing market. Of the two, which one makes the best primary 3-D printing investment for your portfolio?
High immaturity
For being over 24years old, the 3-D printing industry is quite immature. In recent years, the technology behind 3-D printing has evolved rapidly, leading to advancements that could potentially make any company's product portfolio obsolete. That's the risk of investing in the 3-D printing revolution of tomorrow with today's options. We really don't know exactly what the future will look like and which companies are likely to emerge victorious -- the leading companies of today may become the laggards of tomorrow.
3D Systems has taken a conservative, leave-no-stone-unturned approach by aggressively pressuring nearly every segment of 3-D printing, from the consumer enthusiast to the bleeding edge of industrial manufacturing. To cover its bases, 3D Systems has gone on an aggressive acquisition spree, acquiring 17 companies since 2011. Over the long term, this diversified approach will increase its chances of survival, not to mention improve the odds of becoming the premiere destination for 3-D printing. I think it's clear by now that 3D Systems wants to own the entire 3-D printing market, from design software to selling finished products online.
Stratasys on the other hand, is primarily focused on the high-end 3-D printing market. If the future of 3-D printing is high-end, Stratasys has a concentrated position to benefit. However, if the market grows beyond the high-end, Stratasys has effectively left opportunity on the table.
Material differences
The more print materials a company supports, the better position that company is in to serve more customers. 3D Systems offers notably more printable materials than Stratasys, which is firmly committed to ABS plastic. Aside from plastic, 3D Systems offers the capacity to print in metal through its Direct Metal line of printers. At this time, users can print in titanium, stainless steel, cobalt chrome, and tool steel, at a size no larger than 12.6 inches. For industries like aerospace and automotive, metal printing has the potential to become a huge growth area for 3D Systems, but before that happens, 3D Systems needs to expand the printable footprint before it's taken seriously.
Business pulse:
Company | Last Quarter Revenue | YOY Growth | Percent Products | Percent Services | Gross Profit |
|---|---|---|---|---|---|
3D Systems | $90.5 | 57% | 66% | 34% | 52% |
Stratasys | $49.7 | 24% | 83% | 17% | 56% |
Source: 3D Systems and Stratasys quarterly earnings press releases. All dollar figures in millions.
3D Systems makes a lower profit margin on both its products and its services than Stratasys does. Over the long term, as 3-D printers reach saturation, services will become a bigger driver of profits. Think of it like a razor-and-blade model, where the products are the razors and services are the blades. As of last quarter, 3D Systems' services gross margin stood at 45%, where Stratasys' stood at 50%. The current trade-off between the companies is that 3D Systems is a faster grower, where Stratasys is more profitable. I think it's a toss-up, depending on your investing style.
Outcomes can't be printed
Investing in 3-D printing does carry a high degree of risk and should be controlled by allocating a smaller position in your portfolio. The inherent risk is that we don't know what the state of the 3-D printing industry will be like in the years to come, and if either 3D Systems or Stratasys will play a key part in that future. If I had to choose one, I'd go with 3D Systems because it offers more diversification, which increases its chances of success of the long term. Not to mention, 3D Systems offers the capacity to print in metal, a seemingly high-growth area of the future. No matter which name you go with, bear in mind that there's an extremely limited number of investments that offer direct exposure to the 3-D printing market. This dynamic alone will likely lead to more volatility ahead.
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The article What Is the Best 3-D Printing Investment? originally appeared on Fool.com.
Fool contributor Steve Heller owns shares of 3D Systems. The Motley Fool recommends 3D Systems and Stratasys. The Motley Fool owns shares of 3D Systems and Stratasys and has the following options: Short Jan 2014 $55 Calls on 3D Systems and Short Jan 2014 $30 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.
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