A New Stock to Watch in 3-D Printing

NEW YORK ( TheStreet) -- It's relatively rare these days to find a viable tech sector that allows investors to buy in easily at the ground floor.

But when we look at three-dimensional printing, an exception is still seen in its emerging phases. Though perhaps for the wrong reasons, recent news of successful tests with the world's first 3-D-printed gun has put the sector back into the headlines.

Staples ( SPLS) has also announced that it will be the first major retailer in the U.S. to make the Cube printer from 3D Systems ( DDD) available to its mainstream consumer base, both online and in its stores. The Cube is compatible with software platforms used in Microsoft ( MSFT) Windows-running and Apple ( AAPL) Mac computers, has WiFi capabilities and comes with a wide variety of free 3-D templates (with more available for sale online).

Stories like these will surely put 3-D printing back into the purview of investors. But is this premature? Is it still too early to buy into the hype of the 3-D printing revolution?

Evidence of Progress

At the moment, 3-D printers can make mechanical devices with moving parts, clothing, jewelry and even medical implants that can perform better than some parts of the human body. As machinery costs start to approach mainstream levels and gain mass-market access, the 3-D printing industry is positioning itself for liftoff.

The boundaries between the digital and physical realms continue to blur, and manufacturing in the global economy will continue to be re-defined by the progress made in the 3-D printing industry.

The cheapest 3-D printers are currently available for around $500. As these prices continue to drop, the more democratized manufacturing landscape will become a local industry, with items produced near focused markets or areas with significant raw materials access. Undoubtedly, this is a bullish scenario but finding specific companies to watch can be a difficult task, given the current phase of the long-term cycle.

Expected Earnings After a Recent IPO

One of the most recent companies in the sector is ExOne ( XONE), which went public in February. Its most recent performance numbers have been supportive. The latest sales were better than expected at $12.7 million, and the positive surprise helped lift values in some of the other stocks in the sector.

Full-year revenue for fiscal 2012, reported at the end of March, came in at $28.7 million, an increase of nearly 88% from the results seen in 2011. ExOne posted a net loss of $10.2 million after the $8 million loss seen in 2011, but the company is looking for 2013 revenue to improve by as much as 80%.

If these estimates prove accurate, full-year revenue would come in at roughly $50 million. Most of this revenue is expected to come during the third and fourth quarters, so we could start to see something of a turnaround period this year for the company.

ExOne expects to achieve $100 million in revenue in the next three years, The fundamentals suggest this is a company to watch as a growing and increasingly competitive member of the sector.

ExOne is scheduled to release its first quarter 2013 results on May 14, so we are likely to see some volatility in the company's stock value in the near term.

Conclusion:

Sector valuations are still relatively expensive, with more established companies like 3D Systems showing P/E values above 90. Many investors will argue that this is a lot to pay for companies that have yet to establish a proven track record.

To be sure, 3-D printing is for real, and it is fair to say that we can believe the hype. But when looking for investment opportunities, the prudent move is to watch near-term developments in the sector rather than jumping in with both feet at current levels.

Investors will need to be cautious when looking to buy into these companies. 3-D printing is still in its infancy, and there is a good amount of competition from non-public companies (such as MakerBot).

Newcomer ExOne has seen a strong performance this year while some of its more-established sector competitors have not fared quite as well. The ExOne earnings release on May 14 will give some guidance and help determine whether or not the stock's initial rally is set to continue into the latter part of this year.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Richard Cox is a university teacher in international trade and finance. His articles appear on a variety of Web sites, including MarketBulls.net, Seeking Alpha, FX Street and others. Investing strategies are based on technical and fundamental analysis of all the major asset classes (stock indices, currencies and commodities). Trade ideas are generally based on time horizons of one to six months.

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