The Poor Performance of 3D Printing Stocks
Oftentimes our overworked MBAs will be writing about a stock and say something like “Stock Y had a great return of +56% over the past rolling year.” We’re always quick to point out that without a reference point, that return means absolutely nothing. If a broader market index returned +75% over the same time frame, then that means someone who invested in Stock Y could have simply invested in the broader market index and realized a better return at a much lower risk due to the diversification effect. So, when we talk about the performance of 3D printing stocks, we need some sort of reference point. We also need to consider time frames. If we start from the day each stock begins trading, that makes comparisons a bit difficult. Instead, let’s go back four years ago to an article we published on July 14th, 2015 titled “Is Now the Time to Invest in 3D Printing Stocks?”
The Poor Performance of 3D Printing Stocks
In that article, we talked about the Gartner Hype Cycle and how 3D printing stocks were plummeting towards the trough of disillusionment having suffered massive losses in just a single year’s time. Four years have now passed – and several weeks to be exact – so we decided to look and see how these stocks have fared. Here’s what those returns look like (4-year return) and also the year-to-date returns:
|Company||Ticker||4-Year Return||YTD Return|
Only one of these stocks, Materialise, has managed to outperform the Nasdaq tracker ETF (QQQ) over the past four years. Guess it wasn’t the time to buy 3D printing stocks, and who knows if there ever will be a good time. Earlier this year, we talked about how the entire 3D printing industry is pivoting towards a “manufacturing on demand” business model. Companies like Proto Labs have developed business models around providing parts on demand for companies that need to manufacture small lots with quick turnaround times. Turns out there are only so many hobbyists who want to buy 3D printing machines and print plastic trinkets at home. The big opportunity seems to be in 3D printing metals, and we’re seeing loads of companies – many of them private – that are developing metal 3D printing machines for a variety of use cases. A new industry is taking shape leaving us wondering just what’s happening with the original gangsters of 3D printing. Let’s take a quick look at each.
With a market cap of around $1.4 billion, Stratasys (SSYS) sells 3D printing systems – mainly Fused Deposition Modeling (FDM) and inkjet-based PolyJet technologies. Investors in Stratasys might have noticed the stock perk up a bit this year returning +43% year-to-date compared to a broader Nasdaq index return of +27% over the same time frame. A few years back, we published a piece on 3D Printing and Distributed Additive Manufacturing noting that Stratasys may be looking to enter “3D printing as a service.” Unfortunately, the man at the helm of Stratasys, CEO Ilan Levin,
was canned abruptly resigned last May and still has not been replaced. In a transcript of the Q1 earnings call the company states “our industry does not have a wide pool of established leaders to pull from, so we are looking outside the additive industry, which adds to the complexity of our search for potential candidate.” Ah yes, the “war for talent” recruiters are always droning on about.
Stratasys continues to introduce new products and we noted earlier this year that they may be entering 3D printing of metals. A quick look at the financials shows that while year-over-year revenue growth is nonexistent, they are steadily marching towards profitability which could explain the recent share price strength. Just yesterday, Q2-2019 results came out:
So, a profitable quarter which shows the cost control measures are working but revenues aren’t growing which sucks considering 3D printing is supposed to be this disruptive technology that’s experiencing double-digit growth every year.
With a market cap of just over $1 billion today, 3D Systems (DDD) is a company with a past it probably wishes it could forget. The latest investor deck is splattered with so many buzzwords and product names it’s tough to figure out what the strategic direction is today. The latest quarterly filing – Q1-2019 – unfortunately bears scars from the past citing nine ongoing “derivative lawsuits” against the company from purported shareholders. Like Stratasys, the company is trying to get control over their spending and move towards “organic free cash flow in 2019.” Their revenue mix last quarter consisted of Products (33%), Materials (27%), and Services (40%), all of which declined when compared to Q1-2018.
Looking at the bigger picture, they did manage to grow revenues 6% from 2017 ($646 million) to 2018 ($687 million). If only they could make their investor deck less convoluted. It talks about how broad their portfolio of products is yet gives investors no easy-to-glean insights as to what’s actually being sold. Take a look at Illumina’s investor decks to see how complex information can be displayed in such a manner that even an MBA can understand it.
There’s an interesting phenomenon called the “pratfall effect” that says someone who makes a mistake immediately becomes more likable. If that’s the case, then our lovely readers are going to love us even more when we tell them about how bad we effed up this investment. Back when 3D printing stocks could do no wrong, we opened a position in ExOne (XONE) with an “infinite time horizon” as we do with all our dividend growth investing stocks. When shares halved, we backed up the truck so to speak. Needless to say, we’re in the red on this 3D printing metal stock which sports a market cap of just $129 million today.
Earlier this year, we spoke with CEO of Digital Alloys, Duncan McCallum, about how his firm’s new method of 3D printing metals – Joule Printing – is a fast, low-cost method of 3D printing metals. We then went on to look at 10 Powder and Binder Metal 3D Printing Companies of which one was ExOne. “Look at the company’s latest investor deck and you feel more depressed than excited,” we said back in March, and not a whole lot has changed on that front. Like the other companies discussed thus far, ExOne has a stated goal of “net income and positive operating cash flow” which they expect to achieve this year. There’s a lot of competition in this space but also room for multiple players since there are many different ways to 3D print metals that support many different applications.
The first and last time we looked at Belgium-based 3D printing firm Materialise (MTLS) was back in 2014 when they had their IPO. Fast forward to today and they’re sporting a market cap of $1.07 billion and were the only 3D printing company from the list above that managed to outperform the broader Nasdaq index over the past 4 years. That doesn’t come as a surprise when you see how strong their revenue growth has been across all three of their business segments.
In 2018 they were actually profitable which is a step ahead of every other 3D printing company we’ve talked about so far. In October of 2017, Materialise acquired ACTech, a German company producing limited runs of highly complex metal parts for over 1,000 customers in industries like aerospace and automotive. With $123 million in cash and a profitable 2019 expected, there’s some powder left to perhaps acquire more small players in what’s become quite a disparate industry. (We counted at least 50 companies in 3D printing metals alone.)
Speaking of zee Germans – with a present-day market cap of just over $45 million, German firm Voxeljet (VJET) is the smallest company of the bunch that builds some of the largest 3D printers on the market. Their 2018 revenues can be broken down into Services ($15.32 million or 53% of total revenues) and Systems ($13.55 million or 47% of total revenues). The firm continues to bleed cash as they develop new 3D printing systems which will account for 30% of fiscal 2019 system sales and 50% of fiscal 2020 system sales. Their latest investor presentation is simply their Q1-2019 Financial Results deck which talks about how their revenues were up 10% from Q1-2018 and costs were down 4%. At the same time, shares outstanding increased from 18.6 million to 24.18 million shares – an increase of about 30%. That’s probably why the share price has been tanking so much. When you’re a business that’s not profitable, the cash to run your operation needs to come from somewhere. You can either raise debt (can be expensive) or sell shares (dilutes existing shareholders). When the latter takes place, the price of shares has to decrease because everyone’s share of the pie just became smaller (all things being equal).
The stocks we’ve talked about today hardly paint a picture of the 3D printing industry as it sits today. Our past article on The “On-Demand Manufacturing” Business Model talks about how the entire industry is morphing into something that makes economic sense. Furthermore, we see plenty of progress being made in areas like 3D bioprinting – no, not you Organovo – and exciting startups like Carbon are taking in funding left and right. When it comes to stocks, the Ark 3D Printing ETF (PRNT) now contains a whole bunch of new names, so we’re going to get one of our underpaid MBAs to sit down and methodically assess each one to look for anything promising. Maybe there’s some hope for 3D printing stocks after all.
Here at Nanalyze, we hold the lion's share of our investing dollars in a portfolio of 30 dividend growth stocks. Find out which ones in the Quantigence Dividend Growth Investing report freely available to Nanalyze Premium subscribers.