When Will 3-D Printing Firms Start Printing Cash for Investors?

www.3dsystems.com
One of the coolest industries to emerge in recent years is 3-D printing. The ability to create physical 3-D objects in a wide range of forms, colors and textures is mind-blowing. From medical equipment to aerospace parts to toys, the ability to make unique or rare objects on the fly is game-changing. Unfortunately for niche leaders 3D Systems (DDD) and Stratasys (SSYS), the game isn't changing quickly enough to satisfy Wall Street.

3D Systems reported quarterly results on Monday. The results weren't overly impressive: Revenue climbed 23 percent to $166.9 million, and adjusted earnings plunged 25 percent to $19.7 million or $0.18 a share. Delays in new consumer products and a slowdown in sales of metal printers were more than offset by gains in health care demand and other services, but growth has been decelerating sharply at 3D Systems after increasing its top line by 54 percent in 2012 and another 45 percent last year.

Shares of 3D Systems rose 5 percent on Monday following the report, but it would be myopic to call it a success. The stock fell sharply late last month after the company warned that preliminary third-quarter results were showing sales and profitability falling short of expectations. The same 3D Systems investors who were exchanging high-fives after the stock more than tripled in 2012 only to more than double in 2013 are smarting in 2014. Even with Monday's uptick, the stock has fallen by more than 60 percent this year.

It's not alone.

Putting the Die in "Die-Cast"

Last week it was Stratasys taking a hit for the 3-D printing team. The stock plunged 14 percent after the company offered up uninspiring financials of its own. Stratasys lowered its guidance for the balance of its fiscal year. It also spooked investors by revealing that capital expenditures will roughly triple next year. It apparently isn't enough to be a leader in 3-D printing; a company has to spend a lot of money to make sure that it stays there.

Stratasys investors may consider themselves the lucky ones. The stock has only surrendered 22 percent of its value this year. That's a sharp contrast relative to the market averages that have moved reasonably higher in 2014, but it's far better than its smaller rivals. ExOne (XONE) is trading 65 percent lower than it was when the year began, and if you think that's bad, Germany's voxeljet (VJET) has lost 69 percent of its value in 2014.

These are rough days for one of the market's hottest industries of 2012 and 2013. It doesn't help that the fundamentals of many of the individual players are iffy. ExOne and Voxeljet are growing their sales quickly, but they're both at least two years away from profitability. 3D Systems is expected to post lower earnings this year than it did in 2013. Stratasys is the only one that's profitable and growing, but last week's unsettling outlook is problematic.

The technology will be a game changer when it goes mainstream, but it's certainly not there yet. The printers are still too expensive (though some entry-level models are now below $1,000) and too slow (building a physical object, layer by layer).

Then there's the real possibility that the leaders of today won't be the leaders of tomorrow. Hewlett-Packard (HPQ) turned heads recently by throwing its hat into the crowded ring. It's gunning for the industrial printing market, though it hasn't revealed its approach to pricing. It will begin testing its machines with select customers next year, aiming to be officially on the market by early 2016. That seems like a long time, but given the industry's slow-moving ways, it will still give the world's leading maker of traditional inkjet printers a shot to be relevant in 3-D printing.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of 3D Systems, ExOne, and Stratasys. Try any of our Foolish newsletter services free for 30 days. Check out our free report on the Apple Watch to learn where the real money is to be made for early investors.
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