3D printing is probably still foreign to a lot of of people, at least relative to paper printing, despite a shout-out from the President during his latest State of the Union address. 3D printers create objects by “printing” successive layers of resin or thermoplastic material onto a base, according to design files that are input to an attached computer system. While the primary users of the machines have been manufacturing enterprises looking to lower design and tooling costs, industry pioneer Stratasys, Ltd. (NASDAQ:SSYS) is looking to change that with a deal to install its machines in United Parcel Service, Inc. (NYSE:UPS) stores around the country. So, should investors finally dive into the sector?
Stratasys has enjoyed a strong five-year run for its share price, as it has grown revenues and investors have afforded it a higher P/E ratio. To facilitate growth, the company has expanded its reach beyond the manufacturing environment, finding opportunities in places like the medical and education sectors. Of course, the Holy Grail is the large consumer market, where the company hopes to gain market share against rival 3D Systems Corporation (NYSE:DDD) with its entry level uPrint and Mojo product lines.
For its part, United Parcel Service, Inc. (NYSE:UPS) is looking to expand the productive use of its retail store network, which sells a variety of packaging supplies and printing services, as well as being a conduit for its global delivery network. With global economic growth weak, the company has had trouble finding additional revenue opportunities to offset rising compensation costs. Its bid to further expand its delivery network in Europe ran into a wall when the European Commission blocked its acquisition of competitor TNT Express in January 2013.
In the first six months of FY2013, United Parcel Service, Inc. (NYSE:UPS) has reported mixed financial results, with a 1.7% increase in revenues and a 1.1% decrease in operating income. Despite a low single-digit increase in its average daily package volume compared to the prior year, the company’s results were hurt by lower average prices, as its customers opted for cheaper ground services versus its express and air offerings. In addition, the company experienced declining profits in its supply chain segment, due to its decision to back away from matching low price competitors in the freight forwarding area.
Of course, Stratasys, Ltd. (NASDAQ:SSYS) is chasing 3D Systems, the leader in the consumer segment, through its Cube and ProJet brands. Similar to the PC manufacturers, the company has successfully expanded its market share by marketing to the masses at ever lower price points, including its second generation Cube home printer, which retails for roughly $1,300. More importantly, 3D Systems has been more adept at growing its services business, accounting for roughly 32% of sales, versus 17% for Stratasys, Ltd. (NASDAQ:SSYS).
In the first six months of FY2013, 3D Systems Corporation (NYSE:DDD) has continued its strong growth, thanks to double-digit organic sales increases and a string of complementary acquisitions. For the period, the company reported increases in revenues and operating income of 38.0% and 43.2%, respectively, versus the prior-year period. 3D Systems’ sales growth benefited from strong unit volume increases for both its professional and personal printers, as well as its marketing of a widening array of materials and software tools for its machines. More importantly, the company has used its manufacturing experience to gain efficiencies in the production process, which has allowed it to generate a higher operating margin while reducing the price points for consumers.
3D printing is in the early innings of its advancement, as the development of stronger materials allows more customers to use the machines to produce end products, rather than just aiding in the design process. United Parcel Service, Inc. (NYSE:UPS) clearly sees the potential growth of the market and has added 3D printing to its retail service offerings. Despite the relatively high price valuations for 3D Systems and Stratasys, these innovative companies need to be on investors’ watchlists for future investment at lower levels.
Robert Hanley owns shares of 3D Systems. The Motley Fool recommends 3D Systems, Stratasys, Ltd. (NASDAQ:SSYS), and United Parcel Service, Inc. (NYSE:UPS). The Motley Fool owns shares of 3D Systems and Stratasys and has the following options: short January 2014 $36 calls on 3D Systems and short January 2014 $20 puts on 3D Systems. Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Has This Industry Finally Gone Mainstream? originally appeared on Fool.com and is written by Robert Hanley.
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