Shares of almost all 3D printing companies have appreciated considerably this year. Even though analysts are expecting 3D printing to be worth more than $5 billion by 2018, I don't think investing in 3D printing companies, mainly 3D Systems (DDD), is a good idea. Investors have bid up 3D Systems in the hope that its technology will revolutionize the industrial manufacturing process and it will also have a massive presence in the consumer segment. However, I don't think that 3D Systems will be able to fulfill these expectations any time soon, and it may take many years to justify its valuation. Therefore, in my opinion, investors who want to see good returns in the long run should invest their money in Organovo (ONVO) rather than 3D Systems. Let's take a look why.
Why 3D Systems is overhyped
As I already said, investors have bid up 3D Systems in the hope that it will revolutionize industrial printing and also that 3D printers will become an everyday household object in the future, but I don't see this happening anytime soon. I have already discussed why 3D Systems will not revolutionize industrial manufacturing in my previous article. Now, let's take a look at the reasons why I think that 3D printers will never become an everyday household item.
Of course, there are many things you can make with the help of a 3D printer, but people seem to ignore the fact that they will need a very expensive high-end 3D printer, which use resins or lasers, to print these objects. Many people blindly believe that they will be able to manufacture a range of products on a low-end printer (which costs roughly $800), which is definitely not true.
As of now, 3-D printers can only print in plastic, resins, and certain metals. These printers are not capable of printing products in mixed materials and the majority of the products that are used today are manufactured by a combination of materials, and this adds to the limitations of 3D printing.
3D printing is not a user-friendly process and you will need a CAD model to print any desired product. And it goes without saying that you will need to learn how CAD works in order to make a model and mastering the program can take years. Therefore, it is certainly not rational to assume that 3D printers will become an everyday household item in the future.
3D printers use layer-by-layer technique for manufacturing an object, which ensures homogeneous strength. The product which has been manufactured may look exactly the way you wanted it and will have uniform strength throughout, but it will be weaker than the traditionally manufactured products.
Why Organovo may yield better returns
It doesn't take a genius to point out that all 3D printing companies are overvalued and Organovo is no exception to it. However, while shares of 3D Systems have appreciated because of hype and unrealistic expectations, Organovo has grown primarily due to increase in institutional ownership. Therefore, even though it is overpriced, I think investors should consider buying it as its value may not come down because of higher institutional ownership.
Moreover, since Organovo has embarked upon a completely different approach to 3D printing, it doesn't have to face stiff competition. By comparison, 3D Systems will have to compete against the likes of Stratasys (SSYS), Voxeljet (VJET), and ExOne (XONE). In addition, since Organovo's technology is different and unique, its growth will not be restricted by the aforementioned problems.
Moving onto the growth prospects, Scientia Advisors has estimated that it sees a market opportunity worth more than $500 million for Organovo by 2018. As of now, the company has been successful in its attempt to develop functional liver tissues and it aims to broaden its portfolio to heart and kidney cells. For a company that presently has almost no revenue, this is a pretty big opportunity.
Furthermore, it is well known that drug companies risk losing billions of dollars when one of their drugs enters the market and then fails clinical trials, primarily because of liver toxicity. To solve this problem, Organovo is planning to make bio-printed liver assays available for purchase by December 2014. I recently read a bearish article claiming that these liver assays do not hold much promise because liver assays are already being sold, however this is not true.
Organovo's liver assays are nearly twice the thickness and can be printed with small lining of blood vessels, thereby making them a much better option for clinical testing than the presently available assays. In addition, Organovo has generated 3D printed livers which can last for almost 40 days (700% longer than its previous 3D printed liver).
Also, additional data shows that Organovo's 3D liver assays exhibit dose-dependent responses to acetaminophen, an identified liver toxicant, and that the poisonous effects can be assessed using both standard screening assays and histopathological assessment of the treated tissue. The data demonstrates that these liver assays can potentially have value in assessing toxicology problems in human liver over a lengthy period of time, including sub-acute and multiple dose effects.
Investors have no doubt made a lot of money in 3D Systems with shares up almost 160%. However, the prospects might not be able to justify the valuation going forward. In comparison, Organovo is doing something pretty unique and it could prove to be a better buy for the long run. The market opportunity is huge for Organovo, as we saw above, and the stock looks set to yield good returns in the long run.