The perplexing story surrounding the 3D printing sector has always been the favoritism with 3D Systems (NYSE:DDD). The company originally had a charismatic founding CEO that was active in the financial media, but 3D Systems hasn't always delivered the goods for investors.
The 3D printing sector ran into a brick wall combination of over investment, the feared entry of HP (NYSE:HP) into the industrial sector, and bad strategies in the consumer sector over the last couple of years. The sector stocks that includes Stratasys (NASDAQ:SSYS) have shown some life this year, but several reasons exist to question the relative value of 3D Systems.
Missed Industry Growth
One wouldn't know this from listening to 3D Systems or Stratasys, but the 3D printing sector saw substantial growth in 2015. Wohlers listed (via Forbes) industry growth at nearly 26% last year to a total market value of $5.1 billion.
The main growth came from the desktop printers costing under $5,000. As this chart via Engineering.com shows, the desktop sector has seen phenomenal growth in the last few years.
3D Systems via the Cube and Stratasys via MakerBot both missed the growth opportunity with printers that were undercut by Asian manufacturers sending both back to focus more on the industrial sector. The biggest problem though is that these smaller printers are creeping into the needs for manufacturing and industrial applications.
Back To Current Reality
The current reality is despite an industry with fast growth, 3D Systems saw Q2 revenues decline by 7% and missed analyst estimates by nearly $3 million. The revenue drivers remain mixed with the key printers and manufacturing services segments down huge in the quarter.
Source: 3D Systems Q216 presentation
The company beat EPS estimates by a large amount which is what sent the stock up 18% on the day. The gains though came from cost controls and the management team previously at HP spent the majority of the earnings call discussing operating expenses. 3D Systems isn't going to win this competitive market with quarterly R&D expenses of only $20 million.
The other question investors convinced of a rebound in the sector have to wonder is why choose 3D Systems as the vehicle. After the big gain on Wednesday, 3D Systems trades at a P/S valuation multiple nearly double that of Stratasys. As well, the revenue projections generally favor Stratasys.
With a market value of only $1.6 billion even after the big gains, 3D Systems is still a reasonable valuation. Many questions remain regarding the unproven management team and a big focus on cost control when the market is still expanding. Ultimately though, the stock doesn't offer the best value in the sector and limited reasons exist supporting 3D Systems as the best vehicle for playing a rebound in the group.
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