3D Systems: Organic Growth Will Come

| About: 3D Systems (DDD)

3-D printing is a booming industry with immense growth potential. 3-D printing has the potential to revolutionize the industry as well as our daily life. Companies operating in the 3-D printing industry have benefited hugely from the recent boom. The stocks of the companies operating in the 3-D printing industry are currently trading at considerably higher than the year-ago values. One company has been able to show stand-out performance and it has rewarded shareholders handsomely. Shares of 3D Systems (NYSE:DDD) more than doubled over the past year, before the company announced a three-for-two split. Carrying out a stock split indicates that the company is confident about the future earnings.

3D Systems has shown remarkable top-line and bottom-line growth over the past year. However, the stock has been trading at almost 40x forward earnings, implying a growth rate of about 25%-30%. A sustainable growth rate in excess of 25% is a big task for any company, and it can backfire if the company fails to maintain that growth rate. 3D Systems suffered a hit recently, when the company announced fourth-quarter earnings. I believe the fall in price has corrected the valuation of the stock to some extent and it represents an opportunity to buy. I am confident about the growth of 3-D printing industry and expect 3D Systems to benefit from the growth potential.

Massive Growth Potential in the Industry

3-D printing has existed in the marketplace for decades. However, recently the launch of personal 3-D printers has made it a mainstream industry. At present, the industry is going through hyper growth period and industry participants have recorded eye popping growth. The increasing status of this technology and the huge number of uses discovered for 3-D printing has positioned this industry as extremely valuable. According to Wohlers Associates, the 3-D printing industry is expected to grow to over $6.2 billion by the end of 2019.

The manufacturing sector is already benefiting from 3-D printing. Stratasys (NASDAQ:SSYS) is providing industrial scale 3-D printers, which are being used by the companies to alter manufacturing systems. When companies need to change the manufacturing process, they use the printer to print new fixtures and place them in production lines. Ability to easily alter the manufacturing system has provided considerable flexibility to these companies. As a result, these companies are able to achieve operational efficiency.

3D Systems Future Growth

Most of the growth for 3D Systems has come from acquisitions. The company reported 54% year-over-year growth; however, organic growth only contributed 22%. The company cannot rely on acquisitions for growth. 3D Systems will have to achieve higher organic growth in the coming years. At the moment, the biggest growth contributors in the 3-D printing industry are aerospace and medical devices manufacturing segments. Personal 3-D printing is still at the early stages of growth. At the moment, the company has the biggest portfolio of 3-D printers and it will benefit from the expected growth in the personal 3-D printers market. Furthermore, 3-D systems have a solid business model, which will allow the company to have substantial growth as the industry grows.

The biggest portion of revenue for 3D Systems comes from the services segment. As a result, the company has lower dependency on the printer sales. Revenue growth will still be strong for 3D Systems even if the demand for printers declines. The company generates a major chunk of revenues from the material sales. As the personal printers market grows 3D Systems will be able to sell more materials and organic growth will increase. I believe even at the saturation point of the industry, revenues will remain strong for 3D Systems due to its strong position in materials segment. I believe the company is setting itself up nicely for the future growth with the acquisitions. We are yet to see the boom in the personal 3-D printing segment. When the personal printing segment takes off, organic growth for 3D Systems will increase substantially.


Valuation before the earnings announcement was on the higher side for the company. However, I believe at current price levels, the stock price has moved towards fair value. There is always some premium attached to a growth stock. As a result, it is likely to trade at high price multiples. It is easy to guess that a stock a growth stock when a 54% year-over-year growth in revenue can bring the price down. Investors reacted negatively to the next year growth rates, which seems a logical decision. Investors were attaching lofty organic revenue growth expectations, which caused the stock price to go up. However, I believe 3D Systems can achieve strong organic growth in the coming years, and the stock price will move up substantially. I have positive long-term view about the company, and believe that it will be a major player in this rapidly growing market in years to come.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.