Now, triple-digit returns over a fairly short time frame will have plenty of armchair analysts calling for a bubble, but it’d be a mistake to simply sell out of both companies because of their recent successes. Aside from this stunning market-beating strategy, 3D Systems can also still make its investors money. The stock’s bullish thesis boils down to three key factors:
1) Usability and affordability.
Most importantly, it appears that 3D Systems’ advantage over Stratasys and the rest of its competitors—MakerBot and Hewlett-Packard Company (NYSE:HPQ) have products in this space—lies in its usability and affordability. Regarding the latter point, 3D Systems makes a number of printers, though many analysts are most excited about its Cube 3D model, which is priced just below $1,300. Stratasys and MakerBot’s most accessible models are priced near $10,000 and $2,000 respectively.
While most of its competitors’ three-dimensional printers are focused on providing workplace solutions, 3D Systems’ Cube 3D has an intuitive in-home feel, and its design specifications have been tailored so users of all ages can bring their favorite creations to life. For those feeling less creative, the company offers preset designs that can be easily downloaded as well.
2) Product diversification.
In addition to its Cube 3D printer, 3D Systems also offers upper-tier ZPrinter, ProJet and BotMill models. As we proclaimed on Insider Monkey last year:
“3D Systems’ role in its industry is equivalent to a hypothetical scenario where Apple offered its current stable of iPods, and serious competitors only had a 160 gig version to sell.”
With a plethora of price options aimed at the full spectrum of users who will want 3D printers in the future, it’s difficult to justify betting against this company. In fact, the only reason many bears have started to enter the conversation is because of the stock’s so-called “premium” valuation. But, as with many things in life, appearances can be deceiving.
3) Shares aren’t as expensive as they look.
At 37.3 times forward earnings and a PEG near 4.1, 3D Systems looks like a growth-trap at first glance. Yes, obviously the company operates in an industry with mammoth potential, but would investors be better off waiting for a more attractive entry point?
In short, no. In comparison to closest peer Stratasys, which trades at a forward P/E of 42.1x and a PEG of 4.5, 3D Systems is actually priced at about a 10% discount. Neither company pays a dividend, but at 18 times cash, 3D Systems is way cheaper than Stratasys (31.4x) from this standpoint.
In terms of growth, the sell-side expects 3D Systems to generate earnings expansion near 20% a year over the next half-decade—close to what’s expected of Stratasys—but what sets the company apart is its profitability. 3D Systems’ profit margin of 11.2% is about 140 basis points higher than its closest peer, and its 50%-plus gross margin is more than twice the level of Hewlett-Packard.
What does the smart money think?
At the end of the last 13F-filing period with the SEC, some of the most notable hedge funds invested in 3D Systems included Tiger Global Management (see the massive hedge fund’s full portfolio), Louis Navellier’s Navellier & Associates, and Cliff Asness’ AQR Capital (see Cliff Asness’ newest stock picks).
Whether it’s 3D Systems’ product advantage or its fairly attractive valuation, there are plenty of reasons to still be bullish on this space, even in the face of all that “bubble” talk. Clearly an industry leader, this company is positioned very well to be the face of 3D printing’s big push into consumers’ living rooms going forward.
Disclosure: I have no positions in any of the stocks mentioned above
