Why 3D Printing Is Turning Out to Be Risky

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In a year when investors were willing to make speculative trades in emerging technologies, one of the hottest areas was (and continues to be) 3D printing. While recent rallies in the sector have yielded gains – with stocks rising several times over in a matter of months, if not weeks – the uncertainty of how 3D printing will evolve makes the high valuations that have resulted look risky.

Over the past several years, 3D printing has grown from an intriguing idea with seemingly limitless potential to a fledgling industry that each month seems to bring new real-world applications. The technology could bring dramatic changes to industries such as mass manufacturing, the delivery of consumer goods and the creation of artificial organs.

Already, General Electric is manufacturing new turbines with 3D printers, while New Balance is making custom-fit shoes and others are working on disposable panties and personalized sex toys (like the early web, 3D printing business models may be pioneered by the sex industry). Meanwhile, a DIY community reminiscent of the hobbyists who helped shape the PC is experimenting with other uses.

The promise of 3D printing isn’t just in how things are made or how goods are delivered, it’s in the ability to dramatically reduce costs of production. Already, 3D printers have made tweaking prototypes and customizing products much cheaper because the machinery involved doesn’t have to change, only the computer-aided design. In the era of 3D printing, designers may become as powerful and sought after as coders have on in web software.

All of this explains why investor are getting excited about the handful of companies that are making 3D printers for companies and hobbyists. Remember the old chestnut that the people who make money from gold rushes are the ones selling the tools? That thinking is driving a big rally in the shares of 3D printer companies. In fact, for investors, it’s as if a gold-rush mentality has seized them.

The problem is that it’s still so early in the 3D printing industry that there have mostly been small companies in the space, many of which were bought up in a wave of acquisitions. That consolidation is creating a handful of leaders.

3D Systems, founded in 1986 by the inventor of the first rapid prototyping system, has bought 28 small companies since 2011, including Geomagic and Phenix Systems this year. Stratasys, another industry veteran founded in 1989, merged with Israel-based Objet in April 2012 and bought MakerBot, a company focused on the consumer side of the industry, for $400 million last July.

For a few decades, 3D Systems and Stratasys focused on the market for designing prototypes quickly and cheaply. Even now, the bulk of 3D printers are used for such rapid prototyping in industrial design. The two companies have the biggest market caps – $9.5 billion for 3D Systems and $6.3 billion for Stratasys. But as the more disruptive potential of 3D printing has emerged, they’ve been joined by younger, smaller companies that have gone public in the past two years.

Proto Labs, founded in 1999 went public in February 2012 at $16 a share and now trades at $72 a share. ExOne, founded in 2005, went public a year later at $18 a share and now trades at $60 a share. And voxeljet, founded in Germany in 1999, debuted only two months ago at $13 a share and is trading around $39 a share.

The two veterans have performed the best, with Stratasys quadrupling in the past four years and 3D Systems rising eightfold in the same period. Neither rally is showing signs of flagging right now. The younger three, following strong first-day pops (not shown on this chart) and early rallies, have been weakening on valuation concerns.

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With or without recent corrections, these five stocks are trading at irrationally high valuations. 3D Systems, the strongest performer of the group, has a trailing 12-month price-to-earnings ratio of 199 and a price-to-sales ratio of 19. Stratasys is trading at 15 times recent sales, Proto Labs at 12 times, ExOne at 20 times and voxeljet at 30 times.

This month, following the Euromold Conference in Frankfurt Germany, several Wall Street analysts began or amped up coverage of 3D printer companies. Barron’s Tech Trader Daily blog has been faithfully cataloging the reports, which have been more favorable to recommend 3D Systems and Stratsys over the smaller companies.

In short, 3D systems is favored for its broad offerings, Stratasys for its move into the consumer market, and both for their long experience in the industry as well as their strong base of corporate customers. Both, however have grown mostly through acquisitions in the past couple of years, making organic growth harder to gauge.

Among the smaller players, analysts tend to favor ExOne for its (relatively) lower valuation, while voxeljet is still seen as overpriced given some concerns with customer loans.

Then there’s the question of how much of the speculation driving 3D printer stocks will turn in time to the steady, long-term profit growth the prices imply. Earlier speculative rallies in biotechnology and nanotechnology never panned out as hoped. Not all of the promise of 3D printing is fanciful, but it’s not clear which industries it will catch on in, and whether consumers will find it to be more than a novelty.

“We think people may be overestimating the 3D printing ramp in mass manufacturing over the next year but underestimating it over the next five years,” wrote Jeffries analyst Peter Misek in a report this month. That’s the catch with speculation: Between the potential and the profit lies a valley of uncertainty. Crossing that valley is usually harder than it looks, and a lot of hope and money can be lost in the process.

(MORE: Researchers Are Printing Body Parts in China) 

16 comments
MoltenPlastic
MoltenPlastic

When I was a child, microcomputers were a big deal.  To buy one, you ordered it from an ad in a magazine or you went to a convention of HAM radio operators, where they also had computers.  This was between 1975-1978.  We all knew then, that computers and computer networks would take over the planet.


Fast forward to today;  I hand build 3d printers.  I have printers that print, other 3d printers.  I print car parts; toys, prototypes; containers; caddies; hangers; replacement parts to broken things; even crossbows and firearms.


3d printing will change the world.  In fact, it already has.  I am currently designing my own laser sintering 3d printer which will print objects out of metal powder that is sintered and laser welded.


Don't take some reporter's word for it.  Take the word of a person that does this stuff.


Come check out my 3d printing hobby on youtube, you can find me under roboplastics. 

Roxys
Roxys

The way people talk and hype about this, it sounds like magic.

VijayBanga
VijayBanga

It is setting a very very ungenerous trend and if in wrong hands could be disastrous but no one has given this a serious thought . some action is necessary to stop any damage 

3dprintingstocks
3dprintingstocks

There are many bargains in the 3D printing space.  

For example, Groupe Gorge (GOE on the NYSE Euronext exchange) pays a dividend and has a forward PE of 30. You just have to know how and where to find the undiscovered players. I do.

http://www.3DPrintingStocks.com 

Yoshi
Yoshi

Is there a future in 3-D printing? Yes. Is it overhyped as to it's present state? Yes. If you'd like to get in, there will likely be a good entry point once the hype oxydizes and the companies' truer valuations appear. They all appear to be two-to three times over-valued. I'm guessing a big "correction" around Q2 of '14. The ultimate goal is a "replicator"-like machine as envisioned by '70's sci-fi.

eagle11772
eagle11772

Yup !  A risky bet for sure.  Computers, motor vehicles and cell phones are a risky bet too.  I'll stick with my trusty pencil and paper, my mule, and my tomato soup can and string.

D_Coder
D_Coder

You have to start reading science fiction just to keep up.

TanmayLololAnaisPradhan
TanmayLololAnaisPradhan

Ahhhh... the consumers dont care. We just want the freedom to build our own stuff, instead of relying on profiteering companies selling overpriced s***, and vastly helping the environment, by not wasting material and wasteful transportation.

DeweySayenoff
DeweySayenoff

@YoshiActually, the term "replicator" based on the functions of a 3D printer in which an item was duplicated basically from nothing was first popularized by Star Trek. But replicators weren't called replicators until the 1980's in Star Trek: The Next Generation.  The original Star Trek had "food synthesizers" that did the same functions of replicators in ST:TNG, though that series aired in the mid to late 1960's.

Nothing during the 1970's was called "replicator", based on the function of a 3D printer as popularized by Star Trek.

Just a little factual point here.  The 3D printer is based more on the ST:TNG replicator than the 1960's Star Trek food synthesizer and wasn't popularized as such until the late 1980's.

DeweySayenoff
DeweySayenoff

@eagle11772

As snarky as your post sounds, let's look at your success rate had you invested in the items you think had no risk and were a "sure thing":

Computers: Seems to me DEC is having issues today.  Had you invested in THEM, you'd have lost your shirt.

Motor Vehicles: I'll bet you and Tucker would have had words had you invested in Tucker Motors.  GREAT CAR, awful capitalization, massive smear campaign by rivals.

Cell Phones: Unless you cashed out early, Blackberry would have been a bad bet in recent years.

It's not the TECHNOLOGY that's in question. It's WHO'S GOING TO BE THE MOST PROFITABLE COMPANY PRODUCING IT.  Choose well, and you can make a fortune.  Choose poorly, well, you'd be happier being the guy who didn't choose the holy grail well in Indiana Jones and the Last Crusade because being poor is worse than a horrible, but fast, death.

DeweySayenoff
DeweySayenoff

@D_Coder

You seem to imply that people don't read science fiction... Who doesn't do that?

Yoshi
Yoshi

@DeweySayenoff@YoshiYes, you are correct on my ST reference. The 3-D process we are seeing today is the direct descendent of the Stereolithography process patented by a man named Hull back in the '80s. At this time, it's the main process for rapid-prototyping since the '90s. The BIG advantage of the latest 3-D process is the range of materials and "ready-to-use" state of many of the parts made. The biggie is metal. I bought in because of the printing of Titanium parts, such as replacement knees (Germany). Very large upside in the future for "additive" manufacturing. Right now, it's a niche process due to expense and speed. Give it a couple decades, it will change the world.

eagle11772
eagle11772

@DeweySayenoff  I never saw any of the Indiana Jones movies because I can't stand Kevin Costner.  I chose my investments will over the years.  Mostly marijuana, cocaine, heroin, rifles, semi-automatic weapons, and the once in awhile machine guns and land mines.  All in all, I've done VERY well over the years. :)