Stratasys (NASDAQ:SSYS) shares have gained impressively over the past three months, appreciating 22%. Considering the expected growth of the industrial 3-D printing market, it isn't surprising to see that Stratasys is doing well.
The company delivered strong second-quarter results, posting revenue of $178.5 million, up from $106.7 million last year. In addition, it outperformed the $156.6 million analyst estimate significantly. The company's net income also increased to $28 million in the quarter from $18.6 million last year. In addition, the company also raised its annual forecast on the back of strong demand for its 3-D printers.
The market's potential
Looking ahead, the industrial 3-D printing market is expected to grow at a good pace. According to TechCrunch:
"Gartner's forecast shows enterprises continuing to dominate 3-D printer purchases over the next few years, with enterprises spending more than $325 million in 2013 vs. $87 million in the consumer segment, and $536 million in 2014 vs. consumer spending of $133 million.
Gartner noted that current enterprise uses of 3-D technology focus on "one-off or small-run models for product design and industrial prototyping, jigs and fixtures used in manufacturing processes and mass customisation of finished goods." But as advances in 3-D printers, scanners, design tools and materials reduce the cost and complexity of creating 3-D printed items, it said applications of 3-D printing technology will expand further - drawing in other areas such as "architecture, defense, medical products and jewellery design."
As such, it is no surprise that Stratasys is seeing robust sales momentum in performance materials and systems, as seen from the remarkable organic revenue growth of 35% delivered last quarter. Management anticipates this positive momentum to continue in the second half of 2014 as well.
Therefore, the company has raised its financial guidance. Additionally, the company is putting in efforts to position itself for continued growth by improving the organizational structure, coupled with added investments in channel and product development.
Investing for the future
Stratasys is investing in key areas to drive its growth. It is focusing on the ongoing transition to digital manufacturing, control over prototyping, bringing new solutions to the market faster, launching new vertical applications, improving customer service, and upgrading its 3-D printing capabilities.
Stratasys is expanding its suite of products and services to cater to the development of enterprise, and serving the manufacturing processes for several industries and markets. It believes that its solutions have the capability to replace traditional techniques of manufacturing and accelerate the business processes.
Already, Stratasys' Fortus systems are seeing good adoption. About 80% of Fortus system owners in the U.S. are expected to use the technology for their manufacturing applications. Hence, there is an increasing trend of customers finding new applications for 3-D printing after the introduction of technology in their organization. Moreover, these kinds of applications are projected to deliver superior system utilization, and thus improving consumables sales.
New products to sustain growth
To sustain its rate of growth, Stratasys is adding several solutions for addressing new product design. The new Objet500 Connex3 Color Multi-material 3-D Printer is doing well, and is receiving positive feedback from customers. This product allows users to merge multi-materials and color in a single assembly, allowing them to generate fully functional parts very close to the final product build.
Stratasys recently launched two new 3-D printers, the Stratasys CrownWorx and FrameWorx, for its dental lab market. These unique systems enable dental laboratories in producing wax-ups for crowns, bridges, and denture frameworks. Stratasys has recently announced that it will establish a Stratasys Dental Advisory Board to enable the advancement of the digital dentistry.
Stratasys also sees strong growth opportunities in the education business, where teaching institutes are rapidly adopting 3-D printing technologies to uniquely differentiate their offerings. There's increasing demand for 3-D systems from school districts adopting 3-D printing curriculums. Simultaneously, there's strong product mix trend with MakerBot and Idea Series systems gaining good traction.
A risk to consider
"We're focused on business 3-D printing, not consumer 3-D printing. We'll announce a 3-D printing technology at the end of this year, and we think there's a real opportunity here."
In addition, HP claims to have "resolved limitations involved with the quality of substrates used in the process, which affects the durability of finished products." So, Stratasys will need to stay on top of its product development moves in order to ward off impending competition from a big player in the form of Hewlett-Packard.
Fundamentals and conclusion
Stratasys trades at a forward P/E ratio of almost 37, which might seem expensive at first. However, the company's bottom line is expected to grow at an impressive rate of 20% a year for the next five years. In addition, Stratasys is a debt-free company with a strong cash position of $578 million. Its current ratio is also impressive at 5.69.
Moreover, considering the expected growth in the industrial 3-D printing industry, along with Stratasys' strategies and product introductions, the stock's impressive performance can continue.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.