Three “E’s” to consider
The main idea behind 3-D printing is that it revolutionizes current manufacturing processes. It allows manufacturers to speed up the process of prototyping, reduce costs, and drive new levels of design complexity that were once impossible. The $22 billion worldwide power tools market is a huge market for 3-D printers to gain share in, helping boost “E” potential for both companies.
There has been increasing hype around the consumer facing side of 3-D printers, where nearly every home in America is going to own a personal 3-D printer. I’m not officially sold on this idea because the utility of why every home needs a 3-D printer today is lacking. The comparison that the 3-D printer is following in the footstep of the classical inkjet printer is unfounded, given the fact it’s a much smaller potential market base, even at maximum saturation. Anyone who uses a computer could potentially see the need for an inkjet printer, but 3-D printers are far more specialized to garner the same mass appeal. This detracts from 3D Systems’ “E” — investors betting on this promise will likely be disappointed. Stratasys on the other hand, doesn’t operate in the consumer 3-D printer market, neutralizing the negative impact to its “E” potential.
The education space, however, is an area of much greater value for “consumer” 3-D printers. Knowing how to build, operate, and design for a 3-D printer teaches students skills that overlap in fields like electrical engineering, architecture, mechanics, not to mention problem solving and creative thinking. Considering there are over 132,000 K-12 schools in the United States alone, this opportunity could potentially be worth billions in new business. This largely untapped potential greatly boosts the “E” potential of 3-D Systems, but for Stratasys, it’s a lost opportunity.
See the value
Traditional stock screens and methodologies completely overlook the living aspects of these businesses. High-growth investors need to consider a greater depth of insights to get a better sense of the value a company offers the world. Based on the three considerations above, 3D Systems comes out as having much greater earnings potential than Stratasys over the long term. Stratasys is concentrating its business in the high-end of the market, potentially leaving more opportunity on the table. Within these seemingly overvalued companies lies real unconventional value for investors.
The article Are 3-D Printing Stocks Officially “Overvalued?” originally appeared on Fool.com and is written by Steve Heller.
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.
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