3D printing isn’t currently in fashion in the investing world, but it serves as a perfect example of how investors’ excitement about uncertain future prospects can fuel an incredible stock boom that quickly fades as fundamentals don’t support the excitement.
The most widely known 3D printing stocks are 3D Systems Corporation (NYSE: DDD) and Stratasys (NASDAQ: SSYS) which have a current market capitalization of $1.8 billion and $1.2 billion respectively. Both stocks were booming in 2013, with DDD surging 800% and SSYS 500%, only to fall below their 2011 levels in February 2016 and then surge again. Investors who invested in 2011 and sold in 2013 made great profits, but those who invested around the peak, when the biggest volumes we’re traded, saw huge losses.
Figure 1: 3D printing stocks in the last 5 years. Source: Yahoo Finance.
Since May, there has been a new but familiar player in the 3D printing industry. HP Inc. (NYSE: HPQ), the hardware part of the recent HP split, announced its first two 3D printers. The market’s reaction to this unveiling has been minimal which only makes the 3D printing story more interesting.
3D printing will certainly be a part of our future and money will be made on it, but the most important thing is not to overpay. Peter Lynch, who we discussed recently, suggests: “When even the analysts are bored, it’s time to start buying.” As we don’t see any Wall Street Journal 3D printing headlines or Cramer screaming about it, this seems like a great time to take a look at what 3D printing is and see if it is or will ever be a good, low risk – high return investing opportunity.
Overview of 3D Printing
3D printing is also known as additive manufacturing. It turns digital 3D models into solid objects by building them up in layers.
The technology is not new. It was invented in the 1980s and has been mostly used for rapid prototyping. Recently, the industry has evolved and aims to cut out supply chains by producing all the required manufacturing items at the place where you need it via a 3D printer. The stages of 3D printing development haven’t been as smooth as Christopher Barnatt predicted, but we can see in the graph below the areas where 3D printing will most likely grow in the future.
Figure 3: 3D printing market segment adoption curves. Source: Explaining The Future.
3D Printing: The Current Situation
The current situation in 3D printing isn’t stellar as both DDD and SYSS have seen their revenues decline. This could be due to the fact that general business investments have been down in the last few quarters or because 3D printing is not yet what it was expected to be.
In comparison to 2014, revenues didn’t decline much in 2015. Revenues were stable for DDD with a 3% decline in 2015, while revenues declined 8% for SYSS in 2015. Both companies see the current slump as a temporary decline and hope that sooner or later their businesses will thrive. The big reported trailing losses both companies have are due to goodwill impairments as their growth scenarios didn’t materialize.
The new player, HP, plans to revive its business with 3D printers and create a world without waste, warehouses and inventory. You can watch a nice video of what HP sees for the future here.
We have already witnessed one 3D printing investment boom and will probably witness more of them in the future as the 3D printing story seems plausible. However, even if the 3D printing industry gains the kind of traction we believe it can, we don’t know when that will translate into positive returns. The only thing that we can state with certainty is that 3D printing offers a 100 bagger opportunity if the world really adopts 3D printing like the companies believe it will, but you could also lose all of your investment if it doesn’t and the manufacturing world remains as it is.
It’s likely the world will change, as it always has. This would result in another boom in 3D printing stocks. Don’t forget that in the 1990s when PCs were already a pretty normal thing, there was still the possibility to buy Microsoft and have a 20 bagger return over the following 25 years. For reference, MSFT’s price in January 1993 was $2.80 and it is currently is $58.3.
Figure 3: MSFT stock price. Source: Google Finance.
Maybe it’s a good idea to wait until things really get traction, but as everything moves much faster these days, maybe it will be too late to make profitable investments if you wait.
If you invested in 3D printing back in 2013 you should definitely think about investing now because the story hasn’t changed, only now the stocks are much cheaper. If you are new to 3D printing, you might want to expose yourself to it with a small part of your portfolio. That way, if you lose, you don’t lose much, but if you win, you win big.
The safest way to take advantage of the next 3D printing boom might be to invest into a company like HPQ which is already an industry-leading and profitable company, and is currently undervalued.
Subscribers to Retirement Revival, a newsletter by Investiv’s Thomas Moore, were issued a recommendation to buy shares in HPQ on January 22, 2016 at $10.41 per share. Today the stock trades at $14.48, a gain of 39% in only 8 months.
In addition to identifying deeply undervalued companies which pay abnormally high dividend yields, like HPQ, subscribers also receive a second income opportunity every month. To learn more about a subscription to Investiv’s Retirement Revival click here.