3D Systems Corporation (DDD), Stratasys, Ltd. (SSYS) & ExOne Co (XONE): Is There Still Upside in 3D Printing?

3D Systems Corporation (NYSE:DDD)Brean Capital made a very gutsy call on Monday, saying that 3D Systems Corporation (NYSE:DDD)’ high short interest could create a squeeze after its earnings report. However, after 3D Systems’ 5% post-earning loss, the firm probably wished it had waited to make its call. Although, I like the call, and the excitement surrounding 3D printing, but is 3D Systems the best play in the space?

Bullish Call & Outlook

Brean Capital wasn’t the only firm to be bullish on 3D Systems Corporation (NYSE:DDD) in the days prior to earnings. Needham also predicted a strong quarterly performance. In addition, both firms are high on fellow 3D printing company Stratasys, Ltd. (NASDAQ:SSYS), and bullish calls caused both to rally 6% and 4%, respectively, in the day prior to 3D Systems’ earnings.

When you really think about it, both Brean and Needham were in a lose/lose situation when trying to call a post-earning rally. 3D Systems Corporation (NYSE:DDD) had traded higher by 400% since January 2012. Therefore, the stock needed perfection in order to trade higher. And while 3D Systems did trade lower after earnings, I thought its quarter was near flawless.

First Glance At The Q2 3D Printing Space

For Q2, 3D Systems posted revenue of $120 million ($6.17 million better than the consensus) but missed EPS expectations by $0.04, after posting $0.20. However, revenue grew a whopping 45% year-over-year; the company’s gross profit margin rose 51.8%; and the only reason that the company missed its EPS target is because they are investing money into growth, which is what I like to see.

Personally, I prefer a company that doesn’t rest on the expectations of Wall Street, and is willing to invest in order to grow in the future. The 3D printing space is a promising industry, but is also a fairly new space as it relates to consumers. The industry is at a crucial point in its history, where it needs to appeal to consumers, and 3D Systems Corporation (NYSE:DDD) is trying to penetrate this market aggressively.

3D Systems increased its R&D costs by 94.4% year-over-year, significantly outpacing revenue growth, and boosted SG&A by 50% in the same period. Some might say that this rise in costs is a warning sign that operating margins of 20% are not sustainable, but when you consider that 3D System has annual revenue of just $400 million, compared to HP’s $115 billion, you see that 3D Systems Corporation (NYSE:DDD) controls just a fraction of the overall printing market. Therefore, things such as peak sales, margins, and EBITDA efficiency are still hard to determine long-term.

The Best Investment In The Space

The big question after 3D Systems’ phenomenal quarter is whether the company is the best investment in the 3D printing space. Its competitors include Stratasys, Ltd. (NASDAQ:SSYS) and ExOne Co (NASDAQ:XONE).

Stratasys’ niche is the enterprise market, with printers that sell for $10,000-$600,000 per unit. However, the company is also a leader in 3D printing materials and is also making its entrance into the consumer business. ExOne Co (NASDAQ:XONE) operates in the industrial space, with high priced machines. In their last quarter, they sold just five machines but produced nearly $8 million in revenue. 3D Systems Corporation (NYSE:DDD) is more a quantity company, with a niche in the consumer space.

While all of these companies have their niche, they all operate in the 3D printing space. Let’s see how they compare.

3D Systems Stratasys ExOne
Market Cap $4.5 billion $3.4 billion $830 million
Trailing P/E Ratio 108 N/A N/A
Forward P/E Ratio 36.5 34.7 $100 million
Price/Sales 12.0 13.35 26
Operating Margin 19% 2.9% (24.5%)
Return On Equity 9.7% (1.27%) N/A
Revenue Growth MRQ 45% 116% 191.5%

First off, let’s remove the monkey from the room, and address ExOne Co (NASDAQ:XONE), because although in the 3D printing space, it does not compare to Stratasys, Ltd. (NASDAQ:SSYS) and 3D Systems Corporation (NYSE:DDD). At this point, it is way too early to judge ExOne’s upside, as five devices sold last quarter does not give us an indication of long-term performance. We need to see ExOne Co (NASDAQ:XONE) consistently rise in printers sold, and maybe in a few years, we’ll be able to compare it better to its larger peers. As of this moment, 26 times sales looks to be quite pricey.

Now, like I said, 3D Systems’ quarter was great, but as I look at it and Stratasys, I can’t help but to think that 3D Systems Corporation (NYSE:DDD) is running in second place. Stratasys, Ltd. (NASDAQ:SSYS) has now entered the consumer business, and is soon-to-be the most diverse of any 3D printing company. In terms of valuation, Stratasys’ price/sales is only slightly higher, but its growth is more robust. Furthermore, with operating margins of 2.9%, Stratasys, Ltd. (NASDAQ:SSYS) has the potential to significantly expand its margins. Therefore, looking ahead, I believe that Stratasys is the best investment choice.

Final Thoughts

There aren’t too many industries that I’d buy at 12-15 times sales, but 3D printing is one of them. The printing space including consumer, commercial, and industrial is massive, and 3D printing has the technology to do something that HP could never accomplish, and that’s print actual products with the use of different materials. Hence, long-term 3D printing saves consumers and businesses money, which is why I think it will thrive, and that these stocks are worthy of their premiums.

The article Is There Still Upside in 3D Printing? originally appeared on Fool.com and is written by Brian Nichols.

Brian Nichols has no position in any stocks mentioned. The Motley Fool recommends 3D Systems, ExOne, and Stratasys. The Motley Fool owns shares of 3D Systems and Stratasys and has the following options: short January 2014 $36 calls on 3D Systems and short January 2014 $20 puts on 3D Systems. Brian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!