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.
WILL BE POSTING ONCE EVERY WEEKEND ABOUT MY
OPINIONS ON THE MARKET AND VARIOUS INVESTMENT OPPORTUNITIES I HAVE FOUND.
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