Start with the good news. Stratasys shot up 13% on Thursday and is trading currently around $113, down 16% for the year to date but up 15% for the past 52 weeks. The company reported sales of $178.5 million, with non-GAAP income of $28 million, 55 cents per share. Sales were up 67% from a year earlier, 35% excluding acquisitions like MakerBot. Even TheStreet's Jim Cramer likes Stratasys.
Stratasys gave credit to the MakerBot consumer printing unit, based in Brooklyn, N.Y., which saw sales of $33.6 million for its desktop units that use plastic thread and designs from software companies like Adobe Systems (ADBE) and Autodesk (ADSK). As price points come down -- the new MakerBot Replicator Mini costs just $1,375 -- a real early adopter market is developing.
MakerBot's success is causing big players to look at the space. UPS (UPS) has a service bureau operation at select stores, producing designs through third parties. Amazon.com (AMZN) has opened a 3-D service bureau using higher-end printing shops, and sells MakerBot products. OfficeDepot (ODP) also sells MakerBot units and Staples (SPLS) has an agreement for 3D Systems' Cube.
Trip Chowdhry of Global Equities Research has speculated that Apple (AAPL) and Google (GOOGL) may get into the market. Hewlett-Packard (HPQ) CEO Meg Whitman may have an announcement this fall. Any of those companies could legitimize the space or they could steal MakerBot's oxygen.
3D Systems, meanwhile, fell 10% after announcing net income of just $2.1 million, 2 cents per share, on sales of $151.5 million. Its shares currently trade around $48, down 48% for the year to date but up nearly 2% for the past 52 weeks. Year-over-year sales were up nearly 20% but most analysts considered this a miss, although the company did raise its revenue guidance for the year, and operating cash flow so far this year is well ahead of a year ago.
While 3D Systems has a consumer line called Cube, it is most focused on the industrial space, using various materials, methods of creating output, various sizes and speeds. It's a considered sale. Customers have to weigh the full cost of these products against alternative methods of production, and only sign when the cost and quality lines cross.
Andrew Left of CitronResearch says he caught the divergence between the two companies early this year. Canalys analyst Tim Shepherd says the two operate differently. Stratasys makes big acquisitions like MakerBot and gives the units autonomy. 3D Systems makes small acquisitions and focuses on the industrial space. Right now what MakerBot is doing is working. "It's well known for affordable printers and they're doing deals with retailers."
The 3D Systems Cube line was refreshed late in the last quarter and could contend if sales channel can be developed. "You need a level of expertise," to print and to sell 3D printers, Shepherd said. "People need to understand the printers, the quality, technologies, and materials." Channels are having to be built from scratch, and right now MakerBot is ahead in that, Shepherd said.
For investors, both companies' valuations remain stratospheric. Stratasys is selling at 7.3 times its own 2014 estimate for sales, and the price-to-sales ratio for 3D Systems is even higher. You're still buying potential, and while the reality is coming on strong the prices of both stocks may still be ahead of it.
At the time of publication, the author was long AMZN, GOOGL and AAPL, although positions may change at any time.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
TheStreet Ratings team rates 3D SYSTEMS CORP as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate 3D SYSTEMS CORP (DDD) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including unimpressive growth in net income, disappointing return on equity and premium valuation."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth greatly exceeded the industry average of 8.9%. Since the same quarter one year prior, revenues rose by 44.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- DDD's debt-to-equity ratio is very low at 0.02 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 3.66, which clearly demonstrates the ability to cover short-term cash needs.
- The gross profit margin for 3D SYSTEMS CORP is rather high; currently it is at 51.12%. Regardless of DDD's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, DDD's net profit margin of 3.30% is significantly lower than the industry average.
- The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. In comparison to the other companies in the Computers & Peripherals industry and the overall market, 3D SYSTEMS CORP's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- You can view the full analysis from the report here: DDD Ratings Report