3D Systems Corporation (DDD), Stratasys, Ltd. (SSYS): Are 3-D Printing Stocks Officially “Overvalued?”

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Although the idea of 3-D printers is over 24 years old, the public only recently got excited about the prospect as the open source maker movement began to unfold. This movement transformed the face of 3-D printing by significantly bringing down the cost of 3-D printers. What used to cost tens of thousands of dollars in equipment can now be purchased for less than $2,000, putting this technology into the reach of more users. As a result, shares of 3D Systems Corporation (NYSE:DDD) has enjoyed gains of over 200% since its IPO debut in 2011, leading many to proclaim that this small sector has reached "bubble" territory.

3D Systems Corporation (NYSE:DDD)Forget the hype. Additive manufacturing is here to stay and will change the face of manufacturing forever. The 3-D printing industry has been growing by an average of 26.4% a year for its entire 24-year history. In 2011, this growth rate has accelerated to 29.4%, indicating that the demand for additive manufacturing is on the rise. By 2015, the 3-D printing industry is expected to become a $3.7 billion dollar industry, and by 2019, it should surpass $6.5 billion. The fact of the matter is that the industry is growing rapidly, which will ultimately translate into increased profits for 3-D printing companies, bringing valuations to a more palatable level.

Put those valuation concerns aside Based on traditional methodologies, 3-D printing companies are undoubtedly overvalued. Stratasys, Ltd. (NASDAQ:SSYS) currently trades with a P/E above 90, giving the classic value investors the cue to avoid this sector like the plague. Motley Fool Co-Founder David Gardner has a different perspective on high valuations. He's not afraid of them, in fact he likes seeing companies that are called "overvalued" by the media. The link will take you to a short five minute video in which David explains the ins and outs of why high P/E's aren't necessarily a bad thing. This approach has allowed David to capitalize on buying "overvalued" companies like Amazon.com, Inc. (NASDAQ:AMZN) and AOL, Inc. (NYSE:AOL) in the early days, which went on to make life changing returns for his portfolio.

To summarize:

  • David likes stocks with strong past price appreciation. This approach is based on William O'Neil's concept that the "winners keep on winning," because over a 10-year period, the best stocks continuously make new highs.
  • Investors are skeptical of new technology companies, leading them to call any company with a high P/E or no earnings overvalued. He believes that investors in this camp are only considering the "P" and the "E" and not realizing that there's a whole host of other factors you should be "stacking" on top of earnings. He's talking about things like a rock star CEO, a competitive edge, a history of excellence, outsized business prospects, and anything else that differentiates a company from its peers.
  • David believes that "expensive stocks" are interesting companies often with groundbreaking technology, and that often are visionary driven. The negativity surrounding these companies sets them up to climb a wall of worry.
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