3D printing stocks: What to make of their rise and fall

Chris Lau, Kapitall: 3D printing stocks have been on a rollercoaster since last year. Chris Lau thinks the downside ride isn't over.

Investors who bet against 3D printing stocks last year are seeing their investment pay off. Since the start of 2014 when 3D printing stocks peaked, shares continue to trend lower. Now that rich valuations are in question, the real problem for the sector is momentum. Speculative investors are taking the air out of momentum stocks.

3D Systems ( DDD) is leading the drop in the sector. Its shares are down around 50 percent since January 2014. Stratasys ( SSYS) is not doing well either, and Exone Co. ( XONE) is faring the worst.

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3D Systems reported $0.15 per share in earnings on revenue of $147.8 million in Q1. The company re-affirmed guidance. The good news was not enough to stop the stock's drop. Sentiment clearly shifted towards the negative. 3D Systems also grew revenue in the double digits in every business segment:

·       3D printers and other products' revenue increased 53% to $60.8 million.

·       Print materials revenue grew 41% to $40.4 million.

·       Services revenue rose 38% to $46.6 million.

·       Healthcare revenue increased 53% to $21.7 million.

·       Consumer revenue expanded 150% to $9.7 million.

(Source: 3D Systems)

No 3D printer stock was spared. Voxeljet ( VJET) and Organavo ( ONVO) both continue to fall.

Risks ahead

Hewlett Packard ( HPQ) is probably the biggest threat for the 3D printing plays. Even after HP shares are up 63.6 percent from yearly lows, the stock trades at a forward P/E of 9. HP also has the scale, R&D, and channel to push a 3D printing initiative.

Another big risk for 3D printing high fliers is the sell-off in their shares. Both 3D Systems and Stratasys grew their business by acquiring companies. These acquisitions boosted their boat and revenue growth.

Bottom line

Stratasys and 3D Systems are still favorite recommendations from firms like Goldman Sachs and UBS. Investors who still hold either company might consider adding to their existing position, if market negativity reverses. Investors looking to start a new position in the sector might want to wait for the downtrend to end. The companies may fall a bit more to correct for the excessive valuation.

Do you think 3D printing stocks are in for a bumpy ride? Use the list below to begin your own analysis. 

  1. 3D Systems Corp. ( DDD ): Engages in the design, development, manufacture, marketing, and servicing of 3D printers and related products, print materials, and services. Market cap at $7.83B, most recent closing price at $76.39.

 

 

2. Stratasys Inc. ( SSYS): Engages in the development, manufacture, and marketing of three dimensional (3D) printing, rapid prototyping (RP), and direct digital manufacturing (DDM) systems primarily in North America, Europe, and the Asia Pacific. Market cap at $5.26B, most recent closing price at $125.31.

 

 

3. Voxeljet AG ( VJET): provides three-dimensional (3D) printers and on-demand parts services to industrial and commercial customers. Market cap at $350.6M, most recent closing price at $35.06.

 

 

4. Organovo Holdings, Inc. ( ONVO): develops three-dimensional (3D) bioprinting technology for creating functional human tissues on demand for research and medical applications. Market cap at $797.08M, most recent closing price at $10.32.

 

 

5. Hewlett-Packard Company ( HPQ): Hewlett-Packard Company offers various products, technologies, software, solutions, and services to individual consumers and small- and medium-sized businesses (SMBs), as well as to the government, health, and education sectors worldwide. Market cap at $57.06B, most recent closing price at $29.92.

(Written by Chris Lau, a Kapitall contributor. All data sourced from Zacks Investment Research except where indicated.)

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