Is 3D Systems Attractively Priced?

May.22.14 | About: 3D Systems (DDD)

Summary

The recent fall in price has given 3D Systems an attractive valuation.

CubePro has bigger build size and more variety than Replicator, which might go in its favor.

The forward PEG ratio of 1.3 shows that 3D Systems is attractively priced for a stock in the hyper-growth period.

The 3-D printing sector has been under pressure since the start of the year, and almost all the players operating in the sector have lost value. The fall in the stock price has given rise to the notion that speculators may have left the sector and these companies might be ready to make a sustained push upwards. Year-to-date, 3D Systems (NYSE:DDD) and Stratasys (NASDAQ:SSYS) have lost about 47% and 34%, respectively. The prices are now stabilizing and what follows could be sustainable growth. 3D Systems have recently launched its new series to counter Stratasys' MakerBot series. In this article, we will compare the key metrics of these specific models of 3D printers of each company to determine who has greater edge in the consumer 3D printer market.

The Comparison

3D Systems recently announced its Cube and Cube pro series. According to its specification, it is in direct competition with Stratasys' MakerBot Replicator. Stratasys acquired MakerBot to capture the consumer 3D printer market and is very effectively doing so with its current portfolio of printers. This is why Cube series is very crucial for 3D Systems and will help the company to sustain its market share. In the following table a few key metrics of CubePro and MakerBot Replicator are given on which we will evaluate the two printers.

CubePro

MakerBot Replicator

Build volume

273W x 273L x 241H MM

252L x 199W x 150H MM

Layer Resolution

70 to 300 Microns

100 Microns (0.0039 IN)

Speed

15mm/second

40mm/second

Extruder temperature

280°C

220°C

Price

$ 2899.00

$2899.00

Click to enlarge

Build volume is one of the very important factors of 3D printers which determines the size of the printed product. Here, CubePro not only offers bigger printing size but also offers a cubic shape. While in Replicator, the printing size is small and the maximum dimensions are rectangular (252 x 199 mm). So, if a consumer had to print a cubic shape or something which has both equal length and width, Replicator would offer an even smaller printing size.

Next feature in focus is layer resolution. We know that 3D printing is done through the repetitive process of layering. This layer resolution determines how thick this layer would be in a particular 3D printer - smaller the number, thinner the layer. Thin layers will result in better and sleeker finishing and more strength. However, thinner layering compromises the speed of printing.

If we look at the layer resolution of CubePro, it ranges between 70 and 300 Microns. It means that for faster speed, layer resolution would be 300 Microns and for slower, it will be 70 Microns. The maximum speed which CubePro offers is 15mm/second which would naturally be at 300 Microns. CubePro is weak in this area as Replicator offers 100 Microns of layering resolution with 40mm/second of speed. However, it does provide the options of going to thinner layer resolutions to gain better product strength and finishing provided that the consumers have ample amount of time.

Another important metric is extruder temperature. This one is also greatly correlated with printer speed. Extruder is the point through which the input material, for instance, plastic melts and forms layers where needed. Consider it like a glue gun. In order to melt this plastic, the temperature at the tip of extruder has to be higher. Higher the temperature, quicker would be the printing making them positively correlated. CubePro provides 15mm/second at 280°C which is a much higher temperature than Replicator's 220°C on which it gives 40mm/second. CubePro can use PLA, ABS and dissolvable natural PLA in three different colors. This would result in three different extruders. CubePro offers more variety and bigger build space than Replicator - however, Replicator gives consumers more speed.

Valuation: Is 3D Systems Valued Attractively?

A fall of about 50% in stock price is substantial for any company. However, in case of 3-D printing companies, it has been harsh, in my opinion. 3-D printing is still in the early stages and the market is expanding. 3D Systems and Stratasys remain the major players in the market with strong position. As we have mentioned in previous articles, margins of 3D Systems will remain under pressure due to the market expansion. However, as the company increases its global reach, the larger volume of sales will allow it to have better profitability. The organic growth rate in the revenues is still around 30%, which is extremely impressive for any company. At the moment, the stock is trading at forward PEG ratio of close to 1.3 (forward PE ratio: 41, growth rate: 30) - We have taken the organic growth rate only to calculate the forward PEG ratio, if we take the three years average annual growth rate (41%), our forward PEG ratio will be close to 1, which is extremely attractive for a hyper-growth stock. Stratasys is following the same strategy by investing more on marketing and advertisement. Both these companies are trying to capture a larger market share in order to grow margins through volumes.

Conclusion

We believe these stocks are attractively priced due to the recent fall in the price. The industry is still at the early stages and the adoption rate is increasing. At the same time, 3D Systems is increasing its footprint in the market. The growth in the revenues will continue due to the global expansion. The launch of these new products should also help the company continue its growth in the short-medium 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: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. IAEResearch is not a registered investment advisor or broker/dealer. This article was written by an analyst at IAEResearch and represents his/her personal opinion about the companies mentioned in the article. The article is for informational purposes only and it should not be taken as an investment advice. Investors are encouraged to conduct their own due diligence before making an investment decision. I am not receiving any compensation (other than from Seeking Alpha) for this article, and have no relationship with the companies mentioned in the article.