- 3D Printer companies are vulnerable to market momentum shifts.
- But this is early in the market's development. Validation has just begun.
- Patience will be rewarded if you get in when the charts say it's a low. Like now.
It's half-time in the rush toward 3-D printing. That's the take-away you need when analyzing Hewlett-Packard's (NYSE:HPQ) reported moves into the space and the current action on market leaders Stratasys (NASDAQ:SSYS) and 3D Systems (NYSE:DDD).
The technology is established. Early leadership has been demonstrated. Big players are now eyeing the space. But this technology has far to go.
That's because 3D printing is nothing like 2D printing. It's manufacturing. There are many directions for improvement, thus many more niches to capture. The materials being used are one niche - the strength of the resulting product is defined by both materials and how the printer handles them. The speed of the printer is another. The cost is another. The size of the printer "build platform" - the size of the product the printer can make - is another. The underlying technology being used is yet-another direction - you can add on a printer platform, and cut on one as well, or build a mold.
The speed of the printer, the strength of finished products, and the level of competition with other forms of manufacturing, define whether you're making prototypes or production goods. New niches in finished goods are being opened all the time - you can get your next dental crown in one day.
In some areas printer companies are still working the frontier. Stratasys' latest Objet 1000 has a build platform that's 1 meter by .5 meter by .7 meters, and Germany's VoxelJet VJET has a platform that is twice as big in each dimension. You can multiply that opportunity by the number of primary niches in the space.
In some parts of the market 3D printers are heading into the mass market. MakerBot was considered the leader in this area before being bought by Stratasys last year. But this seems to have been a head fake - consumer 3D printers are still only good for models, prototypes, and small plastic parts.
The point is, there are just too many niches, and too many unmet horizons, to believe any company can just in claiming its "faster" or "better" printer will dominate. What Hewlett-Packard is engaged in is classic Fear, Uncertainty and Doubt - it's selling stock rather than product.
That doesn't mean it won't have product, or that it won't have good product. Just that its teasing of a June announcement in March validates rather than closes-off the market. Even in its latest announcement, the company insists it's not aiming directly at the consumer market, where it once held a place with its "DesignJet" - actually a rebranded 3D Systems unit - before exiting and splitting from 3D over a year ago. Instead, it's now talking about creating a network of service providers, which might be cool if they're like, Staples (NASDAQ:SPLS) or Home Depot (NYSE:HD), which can tap a mass market, but probably won't be that strong.
HP isn't the only big player here. [[GE]] bought Morris Technologies, a major user of high-end 3D gear for creating jet airplane parts, over a year ago. They are talking up the space. Siemens (SI) can also be expected to enter the market at some point.
What makes 3D printers exciting in areas like this isn't speed, but precision. GE thinks it can make lighter parts with a printer than it can with any other manufacturing process. And that's a key point here - 3D printing is a manufacturing process.
There are going to be casualties in this space. At this point, companies with narrow product lines like Xone (NASDAQ:XONE) and Germany's Voxeljet (NYSE:VJET) may be subject to a squeeze. But that squeeze also makes them good take-out opportunities, if not for existing industry leaders than for players like GE, HP and Siemens, which are still eying the space.
Right now, both industry leaders, Stratasys and 3D Systems, are trading as momentum stocks. That is, their performance is divorced from their fundamentals.
DDD is trading at nearly 12 times its annual sales, even with its recent pullback. Stratasys is selling at almost 10 times revenue. This makes the current price vulnerable to rumors, and to the underlying market for speculation. Extraneous issues like the Ukraine can hit such stocks hard, and have in recent weeks.
For investors, this means buying opportunities are coming. You can chart both of these stocks, buy at a secular dip, and be reasonably certain that they will come good in time. The Stratasys chart is currently the stronger of the two, and I personally took profits in 3D recently.
But I'm looking for a new place to get in, and you probably should too. This is a marathon, not a sprint. The current pause is just a water break.