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Three Of The Best Plays In 3D Printing

|About: 3D Systems Corporation (DDD), Includes: SSYS, XONE
Summary

Investors are falling all over themselves to get into the 3D printing space and for good reason.

The possibilities with 3D printing might be underrated, where the application of 3D printing can be used across every industry.

Competition in the space will continue to heat up, but there are three companies that have first-mover advantages.

3-D printing is a key part of the future of technology, with the focus on how 3-D printing may impact the manufacturing sector in the U.S. Because 3-D printing is one of the most inexpensive ways to complete complex manufacturing, companies that focus on specialty manufacturing, such as prototyping labs or custom design houses, would gain a big advantage over competitors by adopting 3-D printing, as it allows for shorter design times and improves time-to-market. Three companies that stand to benefit from the explosive growth in this industry are 3D Systems (NYSE:DDD), Stratasys (NASDAQ:SSYS) and ExOne (NASDAQ:XONE).

The possibilities are nearly unlimited
The introduction of new technology could allow printing of metals, versus just plastics, that allow greater opportunities for 3-D printing developments. The utilization of 3-D printing in medical applications is another huge opportunity, particularly in developed nations. This includes orthodontics, hearing aids, and surgical applications, which all require personalized solutions depending on the patient. 3-D printing has the opportunity to dramatically decrease the costs of surgery, as well as increase the effectiveness of such surgeries.

Everyday consumers make the market potential even larger
Another key for 3-D printing is its appeal to consumers. 3-D printing gives consumers the ability to print various products on demand, anything from cell phone cases to buttons, jewelry, piggy banks, and much more.

As the technology develops and the raw material costs decrease, these items will become more affordable, thus enabling consumers to print more of their own wants and needs, rather than buying such items from retail outlets. A trend could develop where goods traditionally sold in retail outlets will now be printed in homes, thereby transferring customers from retail stores to file providers, which are firms that provide data files for individuals to download and print goods.

For example, Otterbox would no longer sell iPhone cases at Target, but could instead have downloadable files for cell phone cases sold via their website. Files could be sent directly to the consumer's printer, and the case would instantly print.

Is the biggest the best?
3D Systems is the largest 3-D printing company in the U.S., with a market cap of $5.2 billion. This company offers desktop printers for personal use, as well as larger-sized options for professional use. The company also offers its own CAD-like software, called Geomagic, which helps users design their own 3-D models.

Shares of 3D Systems, as with other momentum stocks, have traded in a wide range recently. Its 52-week range is between $34-$97, which is quite large. The stock is currently priced around $50, with its P/E ratio above 100. However, its revenue came in at just over $500 million for 2013, up from $350 million in 2012.

Another top operator with a strong brand image
Stratasys is almost as large as 3D Systems in terms of market cap, coming in at $5 billion. It, too, has been doing some interesting things; the company produced three lines of 3-D printers covering personal, professional, and industrial grades.

Its products supply the same industries as 3D Systems, too, but Stratasys has a greater focus on the development of materials for printing applications, which could be very prosperous in the future. As the technology evolves, the accuracy of the designs will depend more on the consistency and quality of the materials being used.

Stratasys is also the owner of Makerbot, the highly successful 3-D printing company that it bought back in 2013. Makerbot has a strong brand image and a great marketing strategy.

Stratasys' 52-week range has also been quite volatile, ranging from $74.50-$138. Shares are currently trading near $102. In 2013, however, Stratasys had negative earnings growth, investing a lot of its revenue in research and development (11% of revenue invested in R&D, versus 8% for 3D Systems). It also had higher selling and administrative costs than 3D Systems. Revenue also lags 3D Sytstems, coming in at $484 million in 2013.

What about small and nimble?
ExOne is one of the smaller 3-D printing companies. It's market cap comes in just under $500 million. ExOne focuses on design and production capabilities and is not involved in the personal printing segment.

The company offers larger printers that use sand and metal materials, and are more driven toward commercial production applications and products than personal use. ExOne is the most volatile of the three companies discussed; its shares have traded in a range of $24-$78 over the last 52-weeks. ExOne is currently trading around $32, having taken a huge hit from the 3-D printing sell-off several months ago. It also released lower earnings projections for 2014. ExOne had negative EPS growth in 2013, and had the highest R&D spending as a percentage of revenue, coming in at 12%.

Bottom line
Only the future will tell which of these companies will come out on top in this relatively new and exciting industry. 3D Systems is best-positioned financially and has positive earnings growth. But, Stratasys has the stronger brand image with product lines such as Makerbot. Both of these companies are worth considering for investors looking to play the 3-D printing market.

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.