3D Systems: A Good Opportunity To Buy?

| About: 3D Systems (DDD)
This article is now exclusive for PRO subscribers.


The recent sell-off is unwarranted and it has created a buying opportunity.

The fundamentals of the business will improve further over the next 2-3 years.

The adoption rate by the consumers and manufacturers will increase, resulting in further growth for the company.

The S&P 500 index is down about 3.25% since the start of the month - some experts believe we are going to see the much dreaded "correction" and the stocks are in for a rough ride. Growth stocks have lost substantial value over the same period and it has caused a mini-panic in the market. The chart below shows the performance of S&P 500, 3D systems (NYSE:DDD), Tesla Motors (NASDAQ:TSLA), Facebook (NASDAQ:FB) and Netflix (NASDAQ:NFLX).

3D systems has lost the most value among the stocks mentioned above. The recent sell-off and the fears about the correction have created an opportunity for the long-term investors of the company to add to their positions, and for the new investors to initiate a position in the company. The fundamentals of the company have in fact improved and the company is focusing on expanding its products portfolio, which should support further growth in the fundamentals of the business.

There are no doubts about the viability of the technology anymore as the major players such as 3D Systems and Stratasys (NASDAQ:SSYS) are expected to have $1 billion in revenues by the end of 2016. The technology is on the verge of being mainstream - companies like Adobe are integrating tools to help 3-D printing - the decision by the major players like Adobe in entering the 3-D printing industry shows that the technology is not far from becoming mainstream. As the technology gets a wider level of acceptance from the consumers as well as manufacturers; the companies operating in the sector will benefit further.

3D Systems have been making partnerships and acquisitions and these acquisitions have been a vital part of the strategy of the business. The company's partnerships with mega-players such as Hershey's and Hasbro further strengthen the belief that the manufacturers are showing more interest in the 3-D printing. This link shows how some large manufacturers are using 3-D printing.

Consumer segment is extremely important for 3D Systems - the hobbyist market has been growing at a phenomenal rate. However, the price of the 3-D printers still makes it a little difficult for many households to have a 3-D printer. We are likely to see 3-D printer prices to come down in the future, which should help the adoption of the technology by the hobbyist segment. The reduced prices will certainly hurt the margins of the companies in the short-term. However, it should be kept in mind that 3D Systems has a materials segment, which is a high-margin segment - materials segment should benefit further as the adoption rate in the consumer market goes up.

3-D Systems is already a strong player in the business and consumer markets - recently, the company has acquired Medical Modeling (I have talked about this acquisition in detail in this article). The acquisition will allow the company to increase its penetration in the medical devices and equipments business. Furthermore, the acquisitions in the medical segment have brought more diversification to the current revenue mix of the company. The dental implants industry is expected to show robust growth over the next few years, and it will allow 3D Systems to continue its revenue growth.

3D Systems will continue to show organic growth of about 30% in the short term, and the acquisitions will enhance the future revenue growth. Taking into account the organic growth numbers of the company and the current price; it is not difficult to say that the sell-off is due to the fear. In the early parts of the last year, I gave 3D Systems a price target of $47 when the stock was trading close to $30. At the start of the last month, I updated my model and gave a new price target - I decided to update the model after the company announced its full year results. Over the last year, the company had introduced a number of new products, entered into partnerships and made some acquisitions -- the updated free cash flows model showed that the stock should trade close to $86 per share -- you can read the free cash flows analysis here. I believe the stock will be trading close to my price target in a year's time.

Bottom Line

Increased adoption by the manufacturers as well as consumers, penetration in the medical segment, expected growth in the materials segment, and the organic growth of over 30% do not warrant the fall shown by the stock over the last few days. The true value of the stock is much higher than the current levels and I believe the stock will be trading close to its fair value in about 12 months. In the longer term, I see more room for growth. The fear and panic in the market always create an opportunity for a savvy investor, and I believe the fall in the 3D Systems' stock price has created a good opportunity to buy.

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.