Seeking Alpha
Long only, deep value, growth at reasonable price
Profile| Send Message|
( followers)  

Stratasys (SSYS) is one of the two biggest players in the 3D printing industry. The company offers small desktop printers as well as large production systems. These printers are being used to create models and prototypes, and also to produce final goods in low-volume manufacturing. In addition the company also manufactures Solidscape 3D printers and operates the RedEye on Demand manufacturing services. Furthermore, Stratasys has about 130 printing materials and 120 inkjet-based photopolymer materials along with 10 thermoplastic materials.

Recently, 3D printing has come into the spotlight and companies like Stratasys and 3D Systems (DDD) have benefited from this increased attention. In my recent article, I explained how 3D printing can impact the manufacturing industry over the next decade. When 3D technology takes a bigger role on the manufacturing front, I believe Stratasys will be the prime beneficiary. Its position in the industrial prototyping and small-scale manufacturing will allow the company to capitalize on the growth opportunity.

Products Focused on High Growth Segment

3D printers are expected to become household items in the not-too-distant future. However, currently, 3D printing is being used more in low-volume industrial manufacturing and the medical sector. At the moment, these two segments are the biggest contributors toward the growth seen by the 3D printing industry. Stratasys is the leading provider of printers to be used in manufacturing and the medical sector. Recently, the company launched Object30 OrthoDesk for small orthodontic labs and clinics. Digital orthodontics is growing at a rapid pace due to the ability of the technology to shorten the delivery time. However, until now smaller labs and clinics have not been able to enjoy this technology because of the high prices. Due to the affordability and ease of use, I expect Object30 OrthoDesk to become a popular 3D printer with smaller labs and clinics.

Furthermore, we are seeing a lot more use of additive manufacturing by professionals and manufacturers. As a result of the focus of Stratasys on industrial customers, the company is reaping rich rewards. Due to the ability of these printers to build jigs and fixtures in hours, manufacturers are turning toward Stratasys. BMW is already using a 3D printer manufactured by Stratasys to make jigs and fixtures.

On the other hand, the personal 3D printing segment (hobbyist segment) of the market is not growing at the same pace as the medical and manufacturing segments. I believe that the hobbyist market will take some time to pick up pace. There is also a possibility that we will see the rise of a different business model. We may see some 3D printing shops offering the services near homes. As a result, the personal 3D printing market may not have as big a growth opportunity as the manufacturing segment. However, the rise of 3D printing shops will also be beneficial for Stratasys as the company is already manufacturing large printers, and it will have no trouble in moving to smaller printers.

Impressive Financial Performance

Stratasys has shown remarkable growth in revenue over the past two years. Fourth-quarter of the last year was the first quarter that included the results from its recent merger with Object. Revenue for the fourth quarter was up 23% year-over-year and 30% for the full year. Moreover, the company expects the revenue growth to be between 20% and 24% during 2013. On the other hand, 3D systems expects full-year revenues to grow somewhere between 24% and 37%. Compared with 3D systems, Stratasys' outlook might look disappointing. However, sometimes it takes a little time for the merging companies to achieve synergies. The high-end 3D printers market is robust, and I do not expect the growth in the segment to come down in the near future. At present, there can be one weak point of the company. In the short term it is fine that the company has only focused on one segment; however, in the long term, Stratasys will have to expand in other segments of the market as well. Otherwise, revenue growth may be hampered in the future.

Conclusion

Stratasys has positioned itself nicely to exploit the growth in the industrial use of 3D printing. I believe the next big growth opportunity will come from increased use of 3D technology in the manufacturing industry. Stratasys has a portfolio of printers and materials that will be in great demand over the next decade. At the moment, Stratasys might seem a little overvalued as there is always a premium attached to growth stocks. However, there is no doubt about the long-term growth prospects of the company, and I believe it can be an attractive long-term investment.

Source: Stratasys: A Great Long-Term Buy