Sunday, March 23, 2014

Are 3D Priting Stock's now Cheap?

            After last week’s volatility markets seem to have regained their momentum with the Dow gaining 132 points this week. The situation in Ukraine that had investors so nervous two weeks ago seems to be subsiding, with Crimea voting to join Russia. Unfortunately with sanctions being thrown left and right the situation is still fragile. The good news is if the political war between Putin and the West does not escalate past this current position it seems that the bull market might continue for a while longer.  

                So far in 2014 the stock market has mostly been up and down, with markets falling in January, up and February and mixed in March. Some industries have so far fared well in the New Year, such as solar energy stocks that recently have seen amazing gains due to good forward guidance. Other industries though, have dramatically underperformed.

                One such industry, that was one of the larger gainers in 2013, is the 3D printing industry. So far this year 3D printing stocks have been hammered, companies like 3D Systems, Exone, and Stratasys, have all seen their stocks fall but has this recent sell-off made 3D printing stocks cheap?

Exone- stock down 40.09% year to date.

3D Systems- stock down 38.87% year to date

Stratasys- stock down 20.97% year to date

                Clearly these losses are immense but the fact that 3D printing stocks have fallen this much in such a short period of time might suggest that they might be ready to bounce back. But before I discuss whether 3D printing stock is now a buy it is important to understand why investors have been dumping 3D printing stock.  

                3D Printing stocks enjoyed a god run-up last year with shares of major players in the market increasing as much as 50-100%. Plus 3D printing is being viewed as the future of manufacturing which it may be, unfortunately this might have created a bubble in 3D printing as investors all rushed to buy into the industry which is selling the future.

                In addition to the over speculation in 3D printing stock the industry is capital intensive and has not gone mainstream. Although many have speculated that 3D printing will replace the current $10.5 trillion industrial manufacturing infrastructure, this has so far not happened, and with companies like Exone recently announcing poor earnings it is appearing that the hype over 3D printing is collapsing.

                Yet what could be even more detrimental to the plight of 3D printing companies like 3D Systems and Stratasys is the news that Hewlett-Packard might be going into 3D printing (the $60 billion giant that is a major player in the standard printer market). H.P’s entrance into 3D printing will create an enormous competitor to current 3D printing companies, especially since H.P is considerably larger than even the largest 3D printing companies out there (3D Systems has a market cap of $5.9 billion, Stratasys has a market cap of $5.2 billion).

                All these factors, over speculation, slow entry into the mainstream market; poor earnings and lowered expectations for the next year coupled with the possibility of an enormous new competitor have clearly put pressure on 3Dprinting stocks and have caused them to fall.  

                But are 3D printing stocks reaching a bottom? Well judging by their fundamentals they are not, the only 3D printing company that is so far profitable is 3D Systems which showed a $44.1 million profit last year. Earnings per share were about $.44 which gives 3D systems a P/E ratio about 66, not exactly cheap when compared to the S&P 500 which trades at a P/E ratio of just 15.

                Normally I would say that futuristic like technology companies like 3D systems should trade at a premium when compared to the rest of the market but in this case 3D systems is showing that its growth is slowing meaning that it is not giving investors any reason to maintain the stocks premium status. Other 3D Printing companies are not profitable at all and have evaluations even worse than those of 3D Systems.

                So in my opinion 3D printing stocks have not reached the bottom yet, but this does not mean that the 3D Printing Industry is doomed. I am convinced that 3D Printing stocks will start going up again to all-time highs, but I do not believe that right now is the right time to buy.

                With that said to those of you who want to invest into 3D Printing but do not want to deal with the volatility and bearish sentiment surrounding 3D Printing stocks a good alternative would be investing into Hewlett-Packard. If H.P goes into 3D Printing as they are expected to then it is obvious H.P will shoot up.  

                H.P does not have many of the problems that other 3D Printing companies are facing, first of all H.P has an alternative revenue stream which includes its line of PC’s and standard printers, this gives the company resources to develop its own 3D printers that are superior to those of the competition. H.P also has a good evaluation, trading at just 11 time’s current earnings, which is below the market average of 15.

                So to conclude this week’s article, 3D Printing stocks are not yet a buy, since even after the sell-off there evaluations and fundamentals are still not aligned to that of the rest of the market, making 3D printing still a premium industry to invest in, even as sales begin to slow down. If the sell-off continues though, within a few months we could see a comeback in 3D printing stock but for the moment Hewlett-Packard, the technology giant, is probably the best company to invest into if you are looking to invest into 3D printing.