3D Systems And ExOne: Printing Profits For The Long Haul

Includes: DDD, XONE
by: Micah Dickson

In the investment world, finding the next home run is the entire pursuit of many professionals. This is especially true when we live in an age with such rapid change in technology and medicine. Many are looking for the next Microsofts or Apples that defined the nineties. For a company to fit this mold, it must be able to revolutionize entire industries or make business ten times easier. 3D printing has the ability to do just that. It allows for tremendous cost savings and the ability to innovate in ways never thought possible. The industry is expected to grow nearly 300% by 2020. With such a bright future, investors are licking their chops to profit from this revolutionary technology. So how can investors take advantage of this growth? Two companies, ExOne (NASDAQ:XONE) and 3D Systems Corp. (NYSE:DDD), provide the best ways to play this industry. 3D Systems is the safer play but ExOne is a risky play that could be a star in your portfolio in a few years.

Why you should be excited about 3D printing

3D printing is an incredibly exciting technology. The process allows to add materials, normally layer by layer, to "print out" objects. The materials can be almost anything the producer desires. Anything from metals to food, 3D printing can use it to produce incredible products. All the manufacturer needs is a computer model of the object and the printer does the rest. This allows for products to be simply downloaded and manufactured in house. Because the object is produced at the site, there is less transportation cost and risk.

Because the process is additive instead of subtractive, manufacturing costs and waste are greatly produced. Additive production is where material is added in the manufacturing of a productive. This is in contrast to subtractive where the material is cut out or removed in order to produce a product. This helps businesses fine tune how much material that must be ordered and kept on hand. It also makes the production more environmentally friendly.

The technology is now used mostly to quickly and cheaply create prototypes that can be rapid tested. But in the recent years, 3D printing is being used to create complicated aerospace parts, athletic shoes, custom tools, and made to order parts. Companies like GE (NYSE:GE) and Nike (NYSE:NKE) are making products using 3D printing. Parts and products can be made to order for consumers. Whether those consumers are large corporations or individual consumers, the buyer can have complete control over the product with little cost to the manufacturer.

The real promise of 3D printing is in medicine. Artificial limbs can be easily produced at lower costs and in less time. A patient could walk into a hospital, be fitted for an artificial limb and walk out with it within 24 hours. And the great part? The limb is specifically customized to suit the patient. One example was that of a boy born without a hand. Doctors were able to create an artificial hand for him for about $150. Another example is that of an Ohio boy who was given a 3D printed implant in his airway that saved his life. That's astounding. But artificial limbs are not the end of the promise of 3D printing, scientists are working on being able to print custom medicines for patients. 3D printing could help reduce the cost of medicines and medical devices dramatically. That reduction in cost could raise the standard of living around the world.

The industry is expected to grow from $2.204 billion in 2012 to $5.2 billion in 2020. That is incredible growth. Such growth could bring incredible profits to investor portfolios. The best two ways to play this growth is with 3D Systems Corp. and ExOne.

3D Systems Corp.

3D Systems provides printers, software, materials, and custom parts to customers around the world. In 2012, the company posted revenues of $354 million compared to $230 million in 2011. That growth seemed to be continuing as the company reported a 31% YoY increase in revenue during its Q1 conference call.

The company holds about 16% market share and is the most recognized publicly traded 3D printing company. If 3D Systems keeps its 16% market share, it could see profits skyrocket and revenues of around $837 million by 2016. Currently, 3D systems is trading at 45.1x forward 2014 earnings and at a price to five-year earnings growth ratio of 2.19. While this may be steep for such a young company, the opportunity for long-term investors to carve out a position in this rapidly growing industry may prove to be well worth the price.

Now 3D Systems Corp. does have some aspects investors should keep their eyes on. One is that the company did report a slowdown in its medical printer sales. Investors should keep an eye out for how that pans out for the company. The reason this could be a serious problem is that healthcare is really where the growth for 3D printing has the most promise.

The ExOne Company

The ExOne Company is another provider of 3D printers and components. The company focuses on the aerospace, automotive, heavy equipment, and power fluid handling industries. The company went public February of 2013 to a lot of excitement. The company only holds around 1.3% market share but expects that to grow in 2013 to around 3%. This is mainly due to their focus on selling more of their printers. Selling and administrative costs ate up most of their revenue in FY 2012. In fact, the company is expected to have negative EPS for the first half of 2013 but have $0.14 EPS by the end of FY 2013. If the company is able to grow revenues 65-80%, as the company projects, look for this to be a strong money generator in the future. This is a lot riskier than 3D systems but could give investors more growth potential.

ExOne is trading at a steeper price than other 3D printing companies but its revenue growth is astounding. This is definitely a play for the long haul. Let me repeat, this is NOT a trade. This is a long-term speculation play that could generate huge profits for investors. In fact, investors may be able to use the first half of 2013 to begin to build a position in ExOne.

The Bottom Line

Both 3D Systems Corp. and The ExOne Company would make a great entry for any investor hoping to profit from the promise of 3D printing.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.