3D printing companies have defied gravity, and their shares have appreciated considerably over the last few weeks. Out the few players in this industry, only 3D Systems (NYSE:DDD) and Stratasys (NASDAQ:SSYS) are the ones which generate a significant amount of revenue and possess a great chance of returning value in the long run.
However, I think that investors should pick 3D Systems over Stratasys in order to benefit the most from 3D printing. While shares of both companies have appreciated considerably this year, 3D Systems is the clear winner. Moving forward, I expect 3D Systems to outperform Stratasys. Let's take a look at the reasons.
3D Systems has strong prospects, and it expects to generate nearly $500 million in revenue this year, with sales to the industrial sector accounting for the majority of its revenue. 3D Systems possess a long list of customers that will help it to outperform Stratasys. Out of all the clients, General Electric (NYSE:GE) interests me the most.
Last year, when General Electric announced the acquisition of Morris Technology, it was widely assumed that the company would jump into the additive manufacturing industry, posing a threat to the existing companies. However, when GE announced that 3D printing will account for nearly 50% of its manufacturing, it became a growth driver for the 3D printing business.
Presently, less than 10% of General Electric's manufactured products use 3D printing. With annual sales of roughly $150 billion, half of GE's industrial output would be an enormous growth driver for 3D printing companies, and given that GE is already a customer of 3D Systems, it may benefit the most from this opportunity.
Moreover, in order to dominate the industrial sector, a company will have to develop printers that print materials like metal at a fast rate. 3D Systems may have already jumped ahead of Stratasys by acquiring Phenix Systems, a leading global provider of Direct Metal Selective Laser Sintering 3D Printers based in Riom, France. The company also recently completed the acquisition of Village Plastics.
3D printing is expected to evolve into the next generation technology for industrial manufacturing. According to IDC, 3D printing is moving toward mainstream adoption, and 3D Systems look set to capitalize on this growth opportunity, considering its recent moves.
The consumer segment
Though the industrial segment holds the key to success for any 3D printing company, the consumer segment will also play a key part. Up until a few weeks ago, the competition between 3D Systems and Stratasys was pretty cold. 3D Systems only had the Cube and CubeX printers, while Stratasys was making its presence felt by acquisition of MakerBot. This acquisition gave Stratasys an upper hand over 3D Systems in the consumer segment, as it unveiled a highly user-friendly and economical 3D scanner called Digitizer.
However, now it looks like 3D Systems has blown Stratasys out of the water and has been making some interesting moves to cement its presence in the consumer segment. Firstly, 3D Systems has added Seiko-I Infotech and Synnex Corporation to its list of global sellers to boost sales of its 3D printers. The company also struck up a deal with Sindho Ink to distribute the Cube and CubeX printers in South Korea.
Moving on, the company recently unveiled a new 3D scanner called Sense. Sense is priced at only $399 and this could well prove to be a game changer for 3D Systems as it is a lot cheaper than Stratasys' Digitizer.
Lastly, 3D Systems recently completed the acquisition of Village Plastics, a manufacturer of 3D printing filaments. Village Plastics is one of the leading manufacturers of 3D printing materials, including ABS, PLA, and HIPS. 3D Systems stated that it plans to
immediately integrate Village Plastics materials and manufacturing technologies to accelerate its development of advanced filament-based materials for its growing Cube and CubeX 3D printers.
The company also said it would continue to support all of Village Plastics' existing customers.
The opportunity in 3D printing is sizable, and these two companies have been making some interesting moves to gain ground over one another. However, 3D Systems has been winning the battle so far. The company is profitable and has been making acquisitions to strengthen its market share. It is moving into the consumer market with Cube, and analysts expect robust earnings growth in the future.
Also, Stratasys' earnings are expected to grow at a CAGR of 10% over the next five years, which is way behind 3D Systems' projected rate of almost 25%. Hence, I believe that 3D Systems is the better pick of the two if you're looking to benefit from the growth 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.