Although the larger economy has seemed to stagnate, the advancement of technology continues to progress exponentially. One of the biggest game changers in the tech sector is 3D printing, also known as additive manufacturing. For those who have not heard of 3D printing, it is the process to take a digital photo and use its data to create a physical object. For more on the basics on how the technology works watch this video or read this Economist piece.
Why is 3D printing such a large breakthrough? First, it is a game changer in manufacturing as it eliminates waste in the manufacturing process, as excess material can be stored in the printer in a way similar to ink in a conventional printer. Also it can drastically lower cost by eliminating the machinery and human labor involved in a traditional assembly line and may move manufacturing back to the developed world from emerging markets.
It would also lower the barriers to entry for new entrepreneurs to enter their products into the market. In the longer term, wider spread use of 3D printing will allow people to literally download consumer goods into their home directly. When you can print out your couch that will also kill brick and mortar retail. Overall, 3D printing is a radical technology that has the power to launch to the next global industrial revolution.
So how can investors capitalize off of this trend? The best way to invest in 3D printing is through its leading company 3D systems. They specialize in selling 3D printers to factories and to lesser extent consumers. In addition to the printers, they also supply the materials, services, and software needed to successfully print in the third dimension. In fact the 61% gross margin is more profitable than the sales of the printers themselves that have a 39% margin.
The current use in the market for 3D printers is to create engineering prototype models and certain types of jewelry. With the costs of 3D printers and printing rapidly decreasing (down 80% over the past five years) and improved technology the uses of 3D printing are expanding. The entry into larger scale manufacturing and in the longer selling personal 3D printers is the drivers for growth for 3D systems.
Especially for a company in its fledgling stages of growth, 3D Systems is in excellent financial shape. The company has a debt to equity ratio of only 0.03 and is reasonably profitable and efficient with a 17.85% profit margin and a 19.17% return on investment capital. Growth is currently high with a 1688.77% EPS growth rate this year and an conservatively estimated growth rate of 25% over the next five years. 3D Systems also provides value for its growth with a PEG ratio of 0.88.
Overall, 3D Systems is an excellent investment in the technology sector. Similar to Microsoft (MSFT) or Intel (INTC) in the 1980’s, its placement in a dynamic industry that will revolutionize manufacturing and its reasonably valued stock price make the 3D Systems a long term buy. However, due to its relatively low volume, price fluctuations may keep risk averse investors up at night. This recent pullback is an excellent buying opportunity once the market reaches some resemblance of stability.