By: Ahmed Ishtiaq
3D Systems Corporation (NYSE:DDD) operates through subsidiaries in the United States, Europe and the Asia-Pacific region. The Company provides 3D content-to-print solutions including 3D printers, print materials and on-demand custom parts services for professionals and consumers. It also provides creative content development and design productivity tools. Its customers include manufacturers of automotive, aerospace, computer, electronic, medical and consumer products in more than 80 countries. Currently, the company has the largest portfolio of 3D printers in additive manufacturing and a growing on-demand custom parts manufacturing business.
The stock has had an exceptional rise since the start of the year. Just at the beginning of 2012, 3D Systems' stock was trading around $15. However, during the year, the stock has gone up to around $42. Over the past week, the stock took a dip and lost about 17% of its value. However, the stock has recovered almost all of the value it lost and currently trades above $41. Release of the first-ever three dimensional (3D) printer for consumers in January this year was the catalyst for 3D systems.
3D systems have shown exceptional revenue growth over the past three years. At the end of 2009, the company generated $113 million in sales, which went up to $230 million by the end of last year. In the trailing twelve months, 3D Systems has generated $322 million in revenues. Gross profit margin for the company has also demonstrated an impressive trend. Over the past five years, gross profit margin has gone up from 40% to 47%. In addition, the operating profit margin has increased substantially. Five years ago, the company faced operating losses of 3.28%. However, by the end of the previous year, the operating profit margin for the company had gone up to 15.15%. 3D systems generated $0.71 per share at the end of last year and $0.68 in the trailing twelve months. The company has a fairly strong balance sheet with long term-debt of $131 million.
Recently, the company has been splashing the cash on acquisitions; as a result, the cash reserves are low for 3D systems. For the most recent quarter, the company reported revenues of $90.5 million, a 57% increase over the third quarter of 2011. In addition, the company further improved its margins through higher revenues from printers and materials. For the third quarter, gross profit grew 69% over the third quarter of 2011 and currently stands at 51.8%.
Furthermore, cash generating capabilities of the company have improved incredibly over the past three years. 3D Systems generated $28 million in cash flows from operations during 2011. However, in the past twelve months, the company has generated $53 million in cash from operating activities. Cash spent on acquisitions has been the biggest component for the company in the trailing twelve months. 3D Systems spent $196 million in the last twelve months on acquisitions. The company used cash reserves along with the funds raised through $107 million worth of stock issue.
The company has a very strong business model, which will ensure strong growth in the years to come. It generates the biggest portion of its revenues from its services segment. 3D Systems is not dependent on printer sales. The company generates more revenues from materials than the sales of printers. Usually, customers end up spending more on materials than printers. As a result, each printer sold starts a revenue stream for the company, which adds significantly more than the printer to its revenues.
3D Systems generates the most money from its services segment, which provides not only maintenance and warranty services, but on-demand parts printing. The company can follow giants like IBM (NYSE:IBM) and make services segment "the most important" part of the company.
There are only two players in the 3D printing arena at the moment, and Stratasys (NASDAQ:SSYS) is the only competitor for 3D systems.
Debt to Equity
Companies operating in the 3D printing sector have high multiples due to the expected future growth in the sector. However, 3D Systems have better multiples than its direct competitor, Stratasys. In addition, the company has better margins. 3D systems has first mover advantage over Stratasys in the personal 3D printing market, and it can carve out a significant portion of the market share.
3D printing is still in the growth stage, and the experts believe the growth will be around 16% for the next five years. Analysts believe that 3D Systems will follow the industry growth and get a lion's share of this market. The company has demonstrated remarkable growth in earnings and increased its current year revenue estimates over $345 million. The fall in the stock price was temporary, which has reversed in the last three days. I believe there are massive growth opportunities for the company. 3D Systems will continue its rise and prove to be an exceptional investment in the long term.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: EfsInvestment is a team of analysts. This article was written by Ahmed Ishtiaq, one of our equity researchers. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.