Stratasys, Ltd. (NASDAQ:SSYS) is probably a safer bet due to its bigger size and its focus on industrial customers, where 3D printers have already proven their viability and convenience in different areas. When it comes to growth potential, however, 3D Systems looks more promising since it’s targeting a potentially much bigger market.
The company will start selling its Cube 3D printer in Staples for a price of $1299 in June, if that project goes well, the company could achieve an important milestone in the democratization of 3D printing by bringing the product closer to the masses. On the other hand, competition is also a bigger risk in the lower end of the pricing spectrum; less sophisticated printers are easier to build by existing players or new entrants, so 3D Systems could be more vulnerable to a changing competitive landscape.
Controlling the risks
If I had to choose one company in the sector I would go with 3D Systems Corporation (NYSE:DDD), the company has higher potential, and it also has a better track record when it comes to translating sales expansion into growing earnings over the last years. However, buying both companies makes a lot of sense in terms of risk reduction, Stratasys, Ltd. (NASDAQ:SSYS) is a safer bet, and diversification reduces the risks in case one of the companies leaves the other one behind in the competitive race for dominating 3D printing over the next years.
The sector is going through a consolidation process, with both 3D Systems Corporation (NYSE:DDD) and Stratasys, Ltd. (NASDAQ:SSYS) being active acquirers of other companies in the business. This is not only hazardous from an operational and financial point of view; it can also generate share dilution and produce some wild swings in stock prices in a relatively short period of time.
Besides, both companies are trading at stratospheric valuations because the market is expecting plenty of growth from these names. Investors in these companies need to be prepared for high volatility in case there is any slowdown in growth or any disappointment in terms of financial performance.
Considering the risks, it may be a good idea to start with a small position an increase over time if prices become more attractive and the companies continue on the road to reaching their long term potential. Keeping your head cool when making investment decisions can be crucial to keep the risks at bay, and it may also increase long term returns by capitalizing the opportunity to buy at discounted prices when volatility is on the rise.
Bottom line
3D printing is one of the most explosive growth opportunities the market can offer to investors over the coming years. The technology has many possibilities for disruption, and we have barely seen the tip of the iceberg when it comes to its long term potential. Investors beware though, it´s going to be an exciting ride, but it most likely won´t be a smooth one, so manage your positions accordingly.
The article Investing to Profit From the 3D Printing Revolution originally appeared on Fool.com and is written by Andrés Cardenal.
Andrés Cardenal owns shares of 3D Systems. The Motley Fool recommends 3D Systems and Stratasys. The Motley Fool owns shares of 3D Systems and Stratasys and has the following options: Short Jan 2014 $36 Calls on 3D Systems and Short Jan 2014 $20 Puts on 3D Systems. Andrés is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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