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3-D Printers, 3D Systems Corporation (DDD) and More: How I Learned to Stop Worrying and Love Volatility

However, only a portion of this $1.5 trillion expenditure is relevant to rapid prototyping, as many industries have no need for physical models. Excluding industries that don’t depend on prototyping, such as information technology, communications, and pharmaceuticals, the “physical things” R&D spend still comes to about $1 trillion.

So how much of these two markets could 3-D printing capture? Nobody can say for sure, but since customized prosthetics are vastly superior to mass-produced prosthetics, I wouldn’t think it a stretch to say that, eventually, half of the prosthetic market could go 3-D printing, for $20 billion. For the “physical things” R&D spend, let’s be conservative and say that over the next couple of decades, only 1% goes toward 3-D printing of rapid prototypes and customized designs, for another $10 billion. If you think these estimates are wildly optimistic, investing in 3-D printers might not be for you. This isn’t a science; it’s a way to back into a more specific idea of how large these companies can get.

Goingwith assumptions, and without expecting any growth in either market and without finding any new uses for 3-D printing, we have a $30 billion-per-year market today. In 2011, 3-D printersbrought in only about $1.7 billion. 3D Systems controls about 13.5% of this market and Stratasys controls 16%, with the remainder split between many small providers. If these companies keep their market share as the industry matures over many years, and their valuations eventually fall back to earth and settle at two times sales, combined they could still nearly quadruplefrom a $5.5 billion market cap to a $20 billion marketcap. If you add in the fact that both health care and R&D are growing markets, and the idea that brand-new commercial uses will be found for 3-D printing, there’s a lot of unquantifiable potential.

Ultimately, it takes time for good companies to grow into their valuations, and nobody knows how much time. Apple Inc. (NASDAQ:AAPL) was considered a high-flying expensive growth stock for two decades, but today nobody can argue with the company’s cash-generating power, and it looks cheap on its earnings. Investors should accept that 3D Systems and Stratasys will not make enough money to grow into their valuations this year, maybe not even in 10 or 20 years. That doesn’t make them a “bubble” any more than Apple was.

Until these companies actually make the money investors feverishly expect, however, their stock prices will be based primarily on emotion. That can be scary, but it can also offer a lot of opportunity. When you have a company with excellent long-term prospects that frequently drops 10% or more for no business reason, prudent investors can buy. You can also sell a portion of your investment every time the stock seems to irrationally pop, locking in some gains. I typically follow this strategy, seeking to rebalance my investments by buying on weakness and selling on strength.On the other hand, some Fools prefer to keep buying their winners, reasoning that a rising stock price is evidence of great execution and a well-managed company will put the new capital to good use.

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