From Barron's Technology Trader:
3-D printing is evolving and growing. But investors beware: 3D Systems, Stratasys, and ExOne may not lead the way.
The world of so-called three-dimensionally-printed objects is a thrilling new chapter in the history of manufacturing, but it has also been a terrible investment proposition since the big names hit their peak in darlinghood in 2013.
One big reason is that this is an industry in flux, as a panel of four clued-in academics at South by Southwest pointed out last week. Nobody seems to know quite how this technology is evolving.
The three major companies beloved by U.S. investors, 3D Systems (ticker: DDD), Stratasys (SSYS), and ExOne (XONE), have real businesses that promise to revolutionize the making of products as big as aircraft engines while also enabling a grassroots culture of “makers” who manufacture their own goods at home or in small businesses.
But expectations were always too high for this group, and since my colleague Alexander Eule opined negatively on them in a cover story a year ago, the share prices have collapsed. (See “Beware 3-D Printing,” March 10, 2014.)
3D Systems shares are down 54% in the past year. Stratasys is off 48%. And ExOne has fallen 65%.
The stocks are cheaper than they were, with multiples just under 30 times projected earnings for 3D Systems and Stratasys, down from over 84 and 53 times, respectively, a year ago. ExOne is not yet profitable.
But they are still not cheap, particularly because it’s become clear that this is a tough business to build to scale.
There needs to be some radical changes in the business model itself before these companies find equilibrium.
JOE BEAMAN JR., A PROFESSOR at the University of Texas at Austin, described with a certain amount of glee what happened when his lab was inventing “selective laser sintering,” or SLS, in which a material in powder form is heated by a laser to build up physical objects. “The first challenge was making a level surface, and the problem was the powder was always turning into snow drifts,” Beaman told participants at the tech fest in Austin last week.
The point is, industry is still experimenting with new ways to actually conduct 3-D manufacturing, which introduces a certain thrill into the business but also lots of uncertainties for investors.
Beaman’s colleague at UT, Scott Fish, is a veritable encyclopedia of 3-D printing techniques—not just the powder SLS approach, but one based on lithography, another called a “binder” approach, using a kind of ink-jet printing technology, and still another, just becoming popular, known as the “aerosol approach.” The latter sounds like fly fishing for flying fish: “Mix it up and shoot it through a very high-speed air stream, and you move the head around and build up material in places that you want.”
The point is, this is not history, this is the very messy present. 3-D printing is an industry still innovating and evolving basic techniques.
THAT EXPLAINS A LOT. It explains why the majors have bulked up on acquisitions, a common criticism of the group —not just to boost growth, but also because each company is trying to cover its bases in a field still in flux. And it explains why trying to sell printers has led to very uneven results quarter to quarter.
Alex updated his negative view on 3D Systems, the market leader, on Feb. 16, and sure enough, a week later, the company reported fourth-quarter results that missed expectations. Its shares are now down 16% since then.
Two weeks before that, Stratasys warned it would miss expectations because it wasn’t able to ship the latest version of its MakerBot line of printers on time. The stock fell 28% the next day.
Last week brought the latest doozy, with ExOne dropping 7% after results missed consensus forecasts, and included a larger-than-expected net loss per share.
The companies, mind you, have solid rates of growth, with 3D Systems sales expected to rise 32% to $861 million this year; Stratasys growing 27% to $949.5 million; and ExOne looking at growth of 36%, to $60 million. 3D Systems and Stratasys are both profitable, and have been for years, and ExOne may narrow its losses to 48 cents per share this year from $1.52 in 2014.
The problem, then, derives from the fact that it’s difficult to sell machines to manufacture things when the technology is still rapidly evolving.
The big three, I think, realize this, and they are moving more and more to a services business, where instead of selling printers, they take orders and make the objects themselves....MORE
