Investing in the next big thing is never a bad idea, but you do need to be cautious. Sometimes what looks like a game changer is a short-lived fad.
Take 3D printing for example. At first glance, it may seem like for the time being it is a novelty for school children. Small, simple systems are marketed as toys around the holidays – but dig deeper. There is every chance that 3D printing technology could disrupt more than a few industries.
Understanding 3D Printing
It might come as a surprise, but 3D printing or “additive manufacturing” has been around since 1984. It has evolved a good bit since then. Sales of 3D printers went from $1.3 billion in 2012 to an estimated $5.2 billion in 2020 – for good reason.
Traditional manufacturing is most expensive for a single unit but that cost tapers off as your level of output increases.
One of the major advantages of 3D printing is that it costs the same no matter how many items you produce. Aside from a small benefit that comes from purchasing raw materials in bulk, it is the same every time whether or not you print one item or 1,000.
Lead times also tend to be shorter, overhead lower, and customization is easy.
Thanks to these characteristics, 3D manufacturing is poised to change everything. The technology is being used extensively by companies in aerospace and defense as well as the automotive industry. It is also used in the construction, manufacturing, and medical industries.
Should You Invest in 3D Systems?
The technology does have some important uses. However, adoption is varied. In some ways, additive manufacturing is still developing.
Right now, it has clear uses in handcrafts and animation as well as toys, prototypes, and certain medical prosthetics, but it is still early.
Over time, 3D printing could have a substantial role in power tools, home improvement, furniture, bicycles, and more.
Investing in such a ground-breaking technology makes sense but deciding which company to invest in is a little more complicated. Let’s look at some of the top contenders.
Is Proto Labs a Buy?
Proto Labs [NYSE: PRLB] is one of the current leaders in the 3D printing space. However, it is not a strict 3D printing play.
The company also creates custom parts through injection molding and computer numerical control (CNC) machining.
Its claim to fame is that they can go from design to shipping in 15 days or less.
Proto Labs [NYSE: PRLB] recently invested €4 million on its European infrastructure, particularly in the UK.
However, this was only the most recent investment. According to Additive Manufacturing Today, “Since 2015, [Proto Labs’] business has supported annual growth in excess of 20% in manufacturing and engineering, sales and administrative functions.”
Proto Labs [NYSE: PRLB] is trading in a 52-week range of $94.20 to $166.60. Analysts put a consensus estimate of $118.25 on the stock – an expected gain of over 4%.
That forecast is just the average of analyst opinions. One of the biggest complaints is that while Proto Labs [NYSE: PRLB] has positive cash flow, its free cash flow yield is below market yield, which suggests that the stock is riskier than so many other opportunities.
Stratasys Buy or Sell?
Stratasys [NASDAQ: SSYS] is another option.
This company’s primary focus is on FDM and PolyJet technologies. Its “PolyJet 3D printing technology can create parts, prototypes and tooling with accuracy down to 0.1 mm, and can be used for molds, tools, jigs, fixtures and other objects,” explains The Street. “FDM’s thermo technology can be used with 3D printers to make durable and so-called ‘dimensionally’ stable objects.”
The company was hit hard in March after it disappointed on earnings. While Stratasys [NASDAQ: SSYS] did post adjusted net income of 21 cents per share – an increase over the 16 cents a share it posted in the same quarter last year, its earnings dipped to $177.1 million from $179.3 million year-over-year.
The company blamed the US government shut down and weakness in the European auto industry, but investors and analysts alike were spooked.
Stratasys [SSYS] just signed an agreement with Pantone – the company that set color standards. Under the terms of the accord, Stratasys is the first 3D printer manufacturer that carries the PANTONE Validated™ designation on its products – model numbers J750 and J735 specifically.
Bottom Line: Best 3D Printing Stocks to Buy
Investing in 3D stocks could be a gamble that pays off but be aware that right now Wall St is not bullish on the companies working in the industry.
Do your due diligence and make an informed decision before you open a position. You may find that the industry is worth your time to monitor, but not ready for your investment – yet. It really comes down to how risk averse you are.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.