- 3D Systems is aggressively investing in its business to make the most of the big 3-D printing opportunity.
- 3D Systems' acquisition of Medical Modeling should allow it to penetrate the lucrative medical 3-D printing market.
- 3D Systems has strong fundamentals, and its earnings growth is expected to outpace the broader industry going forward.
3D Systems (NYSE:DDD) is having a really bad time in 2014 as its shares have declined almost 36%, primarily because of its declining earnings. The company's last reported first quarter wasn't up to expectations as a result, even though it delivered a 45% jump in revenue. In fact, 3D Systems' earnings dropped 28% year-over-year, while its guidance was also below expectations. However, 3D Systems is a growth stage company, and its bottom line is bound to take a few hits as it looks for growth.
A huge opportunity ahead
In my opinion, 3D Systems is doing the right thing by focusing on growth, as it is trying to capture the 3-D printing market as much as possible. This is a smart move, as the market is expected to grow in leaps and bounds going forward. According to a CNBC report:
"Companies specializing in 3-D printing may have been branded the "most hideous" stocks recently, but the sector will continue to produce stellar growth over the coming years, according to latest research.
The size of the global market, including 3-D printer sales, materials and associated services, is predicted to reach $16.2 billion by 2018, according to independent research company Canalys. Its estimates show the sector stood at $2.5 billion globally in 2013 and will rise to $3.8 billion in 2014. And in five years the company believes the market will grow by over 500 percent with a year-over-year growth rate of 45.7 percent.
3-D printing - creating three-dimensional solid objects from digital models - is gathering momentum and is transforming everything from medicine to home goods. Printers that once cost $30,000 now are priced closer to $1,000 and have the potential to rewrite the rules of global manufacturing."
Tapping the market successfully
In fact, 3D Systems is already tapping this fast-growing market quite effectively. In the first quarter, it experienced terrific demand for various products and services. It saw 76% unit sales growth in the professional segment. In addition, the growth rate of its materials business was a record 41%, led by sales of advanced 3-D printers. Moreover, 3D Systems exited the quarter with 17.9 million printer orders, indicating strong demand for the company's Direct Metal 3-D printers. In fact, demand for its printers outstripped manufacturing capacity.
Going forward, 3D Systems plans to expand into new applications, with new product materials and services such as Direct Metal 3-D printers and Multi Metal 3-D printers that are capable of printing fully functional parts and assemblies. Besides, the company is also engaged in promoting its 3-D printing 2.0 capabilities, and demonstrated it at the Atlantic Design Show to increase awareness regarding this technology. These will certainly help the company to capture the 3-D printing market in a big way.
The company believes that 3-D printing 2.0 will form the future of 3-D printing as it features high speed, multi-material and fab-grade 3-D printing developments. Moreover, management is focused on driving growth for products and services with various key initiatives and concrete investments in R&D.
3D Systems is also concentrating on its consumer segment that grew 150% in the previous quarter. The company has already begun shipping the recently launched Cube3, CubePro, and iSense scanners, which will accelerate its growth in the consumer category in the second half of 2014. Also, the company is gaining traction in the market with new consumer products such as ChefJet, CeraJet, and CubeJet 3-D printers. 3D Systems is also planning to roll out commercial shipments in these categories in the second half of the year to further strengthen its position.
Acquisitions should help growth
Moreover, 3D Systems is also focusing on acquisitions in order to enrich the customer experience. It recently acquired Medical Modeling to penetrate the rapidly growing healthcare category. This is a solid move on the company's part because it is estimated that medical 3-D printing is worth billions of dollars. According to 3DPrint.com:
"Drug testing is what empties the pockets of many of the pharmaceutical companies out there. Each year, over $40 billion is spent on clinical trials in the United States alone. Companies like Organovo are working on 3D future-3printing human tissue, which in the short run will allow pharmaceutical companies to test their drugs on human cells without a risk to human beings. Other companies are also working on similar technology. If just 10% of the funds used during clinical trials are funneled into such technology, that would equate to $4 billion annually, just right there. Now if you consider the possibility of printers being sold just for the purpose of printing out prosthetic devices, or even actual organs, like a liver, that number could easily quadruple."
Since Medical Modeling has FDA-cleared processes and cutting-edge expertise, and has the experience of delivering thousands of surgical planning tools and facial prosthetic devices, it should allow 3D Systems to increase its presence in the medical category dramatically.
Fundamentals, Valuations, and Projections
In addition, 3D Systems' fundamentals, valuations, and projections are also in its favor. It currently trades at a trailing P/E of 139, which might seem expensive, but a forward P/E of 49 indicates that terrific growth is expected in the future. Analysts have predicted that 3D Systems' earnings will grow at a CAGR of 22% for the next five years, higher than the industry average of 15.26%.
Moreover, the company has a positive debt profile and a strong cash position. 3D Systems has cash of $307 million on the balance sheet, while its debt stands at less than $19 million. Now, considering the prospects in the 3-D printing industry and the strategic moves of 3D Systems, it looks like a good bet.