Why am I doing this?
Recently, Nobel Prize winner Daniel Kahneman visited Fool headquarters in Virginia. While visiting, he talked about how a number of different biases can lead us to believe we can predict the future with relative certainty. In reality, he argued, we’re just deluding ourselves.
It got me to thinking about how I don’t write enough about the risks of owning the stocks I own. So although I don’t plan on selling my 3-D printing stocks anytime soon, I think it’s healthy for me to practice and model this behavior.
Let’s go over two of the biggest names in the industry.
| Company | Specialty | Market Cap | Revenue (ttm) | Price-to-Earnings | Price-to-Sales |
|---|---|---|---|---|---|
| 3D Systems Corporation (NYSE:DDD) | Consumer printers | $4.4 B | $378 M | 68 | 12 |
| Stratasys, Ltd. (NASDAQ:SSYS) | Industrial printers | $3.5 B | $267 M | 58 | 13 |
Source: Yahoo! Finance, E*Trade, SEC filings.
3D Systems
Source: 3D Systems
This company is home to the founder of 3-D printing, Chuck Hull. Though it has only entered the spotlight over the past few years, 3D Systems Corporation (NYSE:DDD) has been around for over 30 years. And though the company’s recent performance has been spectacular – 40% revenue growth and 84% earnings growth per year for the past three years – there are reasons to be wary.
First and foremost is the company’s price. At 68 times earnings and 12 times sales, many could reasonably argue that 3D Systems’ stock is priced to perfection. Short sellers are clearly aware of this, as 27% of 3D Systems Corporation (NYSE:DDD) float is being sold short. Any disappointing news could send the stock in a downward spiral.
Then, there is the company’s growth-via-acquisition model. Since the beginning of 2011, 3D Systems Corporation (NYSE:DDD) has acquired 17 different companies. Bulls will argue that this is one way for 3D Systems to accumulate the collective knowledge of 3-D printing under one roof, brand name, and logo. They may be right, but that many acquisitions has to raise eyebrows as to whether money is being well spent and if revenue growth really is as impressive as it seems.
Finally, there’s the competition. Though 3D Systems Corporation (NYSE:DDD) does have its hand in the industrial field, its primary focus is in consumer-facing 3-D printers.
Until recently, only Makerbot’s Replicator2 rivaled 3D Systems’ Cube printers. But Makerbot didn’t have the financial resources to pose a serious ongoing threat to the company.
Source: MakerbotThat is, until rival Stratasys, Ltd. (NASDAQ:SSYS) bought Makerbot and can now pump cash into building the brand. That presents a serious change to the consumer landscape that investors need to be aware of.
Stratasys
Speaking of Stratasys, Ltd. (NASDAQ:SSYS), lets tackle this company next. As with 3D Systems Corporation (NYSE:DDD), the first red flag for investors should be the price of Stratasys’ stock. Again, the company has shown impressive numbers – 43% revenue and 52% earnings growth per year over the last three years. But the company now trades at 58 times earnings when analysts only expect earnings to grow by 31% between 2013 and 2014.
Source: StratasysSecondly, while Stratasys, Ltd. (NASDAQ:SSYS) has been using acquisitions far less frequently than 3D Systems Corporation (NYSE:DDD), it has made two big splashes within the past year. First was the announced merger with Objet, an Israeli company that gave Stratasys access to new technologies as well as new industrial markets. The second was the aforementioned merger with Makerbot.
