3D Printing Stocks: Are They Worth the Risk?
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3D printing stocks like Desktop Metal, Stratasys, and Nano Dimension have done investors no favors, and we’ve consistently warned our audience about them. Recently, an astute subscriber sent us an email with his thesis for a better way to play the 3D printing theme. Today we’ll look briefly at his idea, and we’ll check in with the other 3D printing stocks we cover to see if any of them are worth watching today.
3D printing promised us the Star Trek Holodeck but all we’ve gotten so far is a bunch of Klingon lies. If you’re not a Treky, here it is in plain English: investors were told that 3D printers would be the manufacturing technology of tomorrow but that reality hasn’t lived up to the hype. Today, we’re going to talk about 15 3D-printing stocks including popular names like Nano Dimension, Stratasys, Desktop Metal, and more. And don’t go skipping to your favorite names right away or A) you’ll hurt my feelings and B) it’s about the journey, not the destination.
And my 3D-printing Journey began several decades ago in the R&D department at Hewlett-Packard when rumors were going around that they were 3D-printing chess pieces. So that’s the first part of the thesis. A 3D printer in every home producing more stuff you don’t need.
About a decade ago there was a massive amount of hype in the 3D-printing space and that largely surrounded the two OGs of 3D printing: Stratasys and 3D Systems.
Both Stratasys and 3D Systems saw their shares climbed so high they had a combined market cap of over $15 billion. We fast forward to today and their combined market cap is about $1.1 billion.
The Four Main 3D-Printing Themes
So when we dissected the 3D-printing opportunity, we really came up with four themes.
So first would be 3D bioprinting and the basic idea here is that your 3D printing organs and all kinds of cool stuff, right? The second would be Distributed Manufacturing and the idea there was a central place where you could send jobs, manufacturing jobs, to and then 3D printers would produce parts on demand.
I always thought of it as NAPA Auto Parts, printing the auto parts that you needed on demand. But none of that ever really transpired. It hasn’t really gone beyond prototyping. It continues to be small batch. And, of course, a key component of that would be Metal 3D printing, that’s what it says on the tin. And then you have just general 3D printing.
So whenever we look at any theme that has a lot of promise, we want to see Revenue growth. That’s a proxy for disruption happening, right? Now sufficient time has passed. So when we look at any of these companies, I think a good litmus test is to say, are they seeing Revenue growth?
Stratasys (SSYS) Stock
When you look at Stratasys, the answer is clearly no. So they had something going, it appears, up until last year when they saw a dip in their revenue growth and when you look at the quarterly trend, it’s all rather dismal.
So last quarter they had a consumables consumption roughly flat, so 1%. What’s worse is that their system sales were down 38%. So people aren’t buying machines and if they’re not buying machines, consumables can’t really grow. And when you look at their latest investor deck, I think what’s a bit disheartening is that Management’s really focused on profitability, not growth. That’s not a good sign, right?
They’re expecting $575 million for this year. So that’s going to be their second year of declining revenues and it’s a fair amount of decline. So there’s nothing really to see there. One telltale sign of a company that can’t make organic growth happen is when they go out and start looking for other companies to acquire and what’s even more concerning is when the company they’re looking to acquire is rather shoddy.
We’ve had a long relationship with Desktop Metal that goes all the way back to when they were a startup and we were speaking with their, I suppose it wouldn’t be investor relations, but their marketing team to learn about the exciting stories they had to tell which never really transpired. So this press release here from Bloomberg, May 2023, talks about how Stratasys planned to combine with Desktop Metal in this $1.8 billion deal and back then they were expecting that the combined firm would see $1.1 billion in revenues by 2025.
But if we do some basic math on that you see Stratasys and their $575 million midpoint for this year, Desktop Metal with a trailing 12 months revenues of 168 million, they’re not providing guidance because they’ve been acquired, we’ll talk about that. But that would equate to 48% growth next year. I don’t see that happening.
So this merger was never destined to happen. There’s been a lot of merger activity in this space and Stratasys has actually received an unsolicited proposal to be acquired by Nano Dimension, another company that we’ve covered over the years.
That fell through. But what ended up happening is that Nano Dimension has now acquired Desktop Metal. What that means is the Desktop Metal SPAC holders can now lock in that 95% loss on their shares. The problem with Desktop Metal is they never got that production platform that was supposed to solve the woes of mankind. That never got off the ground.
Nano Dimension (NNDM) Stock
Instead, you see here, they’ve now been acquired by Nano Dimension. This is a company we’ve been warning investors about over the years.
I think putting lipstick on the Desktop Metal pig isn’t going to help anything. I’m not sure where the growth synergies are coming from. Because when you look at the financials for both these firms, along the top, and you have Nano Dimension and you see they’re running at a pretty heavy loss and that’s fine.
As long as you’re experiencing Revenue growth but that doesn’t seem to be happening. And then when you look at Desktop Metal, the biggest concern here is going to be that negative gross margin. They’re going to have to solve that problem and they’re also burning through a fair amount of cash and especially when you have a negative gross margin, how are you ever going to achieve profitability in the future if you can’t solve that basic problem? So I don’t think that this merger’s necessarily going to lead to anything great. Now we could certainly take a look at the combined company later on down the road.
Velo3D Stock
But what I think you see across all metal 3D printing SPACs is a track record of broken promises and we’ve warned investors about those for years ever since SPACs debuted. And if we look at the other metal 3D printing SPACs, we see Velo3D.
So they’ve delisted to the over-the-counter exchange after losing 99.75% of their value. We wrote about them when they debuted and said we’re largely avoiding SPACs and Velo3D gives us no temptations. The double-edged sword at the time was SpaceX being their largest customer and, as regular viewers know, customer concentration risk is something that we avoid like the plague especially when it’s as bad as it was for Velo3D.
When your biggest customer is SpaceX, they have all the power at the negotiating table and perhaps that’s why Velo3D saw gross margins moving in the wrong direction. So the last I read, they had received a little bit of bailout money from SpaceX who’s taking their technology and developing something far greater inhouse, it seems. We’ve looked at that in the past.
Markforged (MKFG) Stock
Then you have Markforged. They’re now a sub-100 million company after losing 96% of their value. Revenues appear to have flatlined.
They failed to hit their 2023 stated growth targets and it’s just too small now to be on our radar.
3D Systems DDD Stock
And that brings us really to the other OG in 3D printing. That would be 3D Systems. And when you look at this chart here it shows the year-over-year growth for the first half of this year across their two verticals: they’re Healthcare and Industrial.
We see declining growth in both and when you look at their 2024 Outlook, they talk about revenues in the range of $450-460 million. So yet another year of declines.
And when a company starts to focus more on profitability than growth of revenues, it just shows you the direction that they’re going. The 3D printing industry just doesn’t seem to have a lot of growth in front of it. Now in our Tech Stock Catalog, which is a collection of 460 tech stocks, it’s quite a rich Excel spreadsheet that’s available to premium subscribers, we cover 15 3D-printing stocks.
Organovo ONVO Stock
One I wanted to point to here Organovo or ONVO. We’ve been covering them, I think, for close to a decade now and I pulled up this piece here. We warned on them many times.
We said investors should be extremely critical of the company. A company has to have meaningful revenues, otherwise we’re just not interested. They would say things like, well, we have multiple customers placing second orders. Well, I sure hope so. That’s kind of how a business works, right? But what was really suspect on their website back then, they had put, can you comment on why certain websites have articles with a negative spin and without any quotes from Organovo. Boy, this is horrible.
So I think that back then that was in reference and Nanalyze and with a negative spin. I should certainly hope investors would be critical of companies they’re investing in. And without any quotes from Organovo. That’s a little pet peeve of mine where we see cheerleaders will come around and say you never spoke with a company. Right, because, guess what? C-level types of companies are largely glorified salespeople. You do not get a lot of value in talking to those individuals. It’s largely a waste of time.That’s why we don’t do it.
Of course, it goes without saying that we wouldn’t have gotten quotes from company executives, right, you can get those off their marketing collateral. and then I like this- this was in their frequently asked questions – it says, I read comments critical of Organovo on an article recently, should I be concerned?
Well, yeah, you should have been concerned because you would have lost all your money. So I’m going to put a link to our newsletter in the comment section of this video. Sign up for that and that’s where we’ll disseminate articles that we write.
Two 3D-Printing Stocks: BICO and Align
Now a few other names in our catalog, we have BICO group. So they were doing 3D bioprinting and the growth just isn’t there. They’re trying to turn around the business after all three founders bailed. That’s never a good sign, right? And you have Align Technology.
So they were working in the dental space, disrupting Dental Tech. Their revenue growth has stalled as well, calling into question the size of the Total Addressable Market or, at least, how much there is left for them to capture.
Renishaw Stock
So that brings us to other companies. And one being Renishaw. We’ve plotted out here their revenue growth, so bit volatile there and, more recently, they’re not seeing growth.
One problem we’ve always had with Renishaw, they don’t provide a lot of color into how much revenue is coming from additive manufacturing. All you have to do is just break that stuff out. If you’ve broken it out already in the financials in terms of how you describe your business, break it out in revenues. It shouldn’t take a lot to do that. And they say, our focus is on developing solutions that accelerate additive manufacturing use for high-volume manufacturing applications. That’s the Holy Grail. That’s what these firms don’t seem to be able to break through.
Protolabs (PRLB) Stock
Now that brings us to, of course, Protolabs. This is a company that wants to break through to higher volumes of manufacturing aside from small batch and just prototypes. And when you look at this piece by Motley Fool, it talks about why Protolab stock soared 34% after earnings.
Well, we always invest in companies, not stocks. But the reason for that is they saw a big beat on earnings. Not Revenue growth, just earnings. And that’s why we bailed on Protolabs, they just haven’t been able to grow their business. And here you can see how it started.
This was their, I believe, a billion dollars by 2026. So they had some lofty goal that they hoped to achieve and how it’s going is far from that. Here you can see their revenues plotted over time in the estimates for 2024.
So they’ve largely just flatlined. You see this piece we wrote several years ago, is it finally time to sell Protolab stock? And it was, and we did. Now Protolabs and Xometry, this is right out of an MBA case study, have been taking two different approaches to distributed manufacturing.
We’ve written about this topic extensively over the years. Not so much recently since the space doesn’t seem to have much growth around it. But Protolabs took the approach of having all the equipment in house whilst Xometry farmed out jobs like a software hub and spoke model.
Now we always thought that Protolabs had a super business model because you have a closed loop and you can learn from all that data and you can assure quality. How can you assure quality if you’re farming out jobs to people all over the world?
Xometry XTMR Stock
Well, we originally invested in Protolabs and then moved on to Xometry as it appeared they were emerging as a leader. We’ll look at that in a second. But we then exited Xometry on the back of a revenue miss and failure to address these accusations raised in a short report.
From my perspective, if somebody comes out and bad mouths your firm and it, in a large number of ways, you owe it to investors to acknowledge that and not just to sweep it under the carpet and which is what they did. And some of the accusations were that they had higher customer churn rates than they LED investors to believe. This is the most concerning perhaps. For every dollar spent on Advertising, they received 85% in revenues. That’s not a sustainable business model and insiders were selling shares like mad.
And this last bullet point, their AI-quoting functionality is subpar and being replicated. So I spoke with a subject matter expert in great length, this would have been I think several years ago, about this particular topic in that AI wasn’t doing all the great things that they said it was. And we ended up bailing.
Now when you look at – this is a great chart – it shows the growth of Xometry over time compared to Protolabs and how one emerged, Xometry, clearly as the leader and now they’ve surpassed Protolabs in revenues.
Matrialise MTLS Stock
That brings us to Materialise. This is a $434 million company.
So any of the companies that we’re talking about today like Stratasys and 3D systems and, of course, Materialise, any firm that’s below a billion dollar market cap is below our cut off and it’s just not going to be something that we’re interested in. But Materialise, there’s a lot to like here. You see how they’ve broken down their business into three components: Software; Medical, which is appealing, of course; and Manufacturing. So that’s the distributed manufacturing thesis. You’re getting a bit of exposure to there. And you see here a lot of exposure from Europe. And when we look at Revenue growth, we see something happening here.
So look at the over the last three years, some double-digit Revenue growth there. They’re profitable. Operating cash flows are positive, it looks like, for the past four years. That’s great. That means they don’t have to raise capital and healthy gross margins above 55%. So that’s all very attractive. And I think if this firm continues on that growth trajectory, it could be something that we look at again and perhaps find appealing.
Metal 3D Printing Powders
Now that brings me to the last component of this thesis, and a rather interesting one. This was raised by a premium subscriber who I’d love to name I didn’t get their permission to name. But they provided this interesting thesis on metal 3D printing powders. And I wanted to comment on that.
So their idea is that on shoring increased defense, R&D spending, and a growing interest in space – these could be drivers that propel metal 3D printing and, as a result, metal 3D printing powders should see a lot of demand. They say there’s a compelling opportunity to invest in companies that are integral to the additive manufacturing value chain, those focused on developing and supplying high-performance metal alloys.
They cited two companies, ATI and Materion. They mention how these firms will benefit from Diversified revenue streams. And the problem that you run into here, in the case of both companies, I’m not seeing any mention of additive manufacturing usage for materials or Revenue breakdowns or any sort of traceability where we can attribute demand for metal powders to an increase in additive manufacturing. You kind of want to be able to make that connection here for both firms.
You can see Materion, some nice Revenue growth there, net sales for performance materials being just one component of what they do. They also dabble in electronic materials and precision optics.
Conclusion
Now these four themes that I described for 3D bioprinting, we’re still not seeing Oregon 3D printed at scale. I don’t think there’s any surprises there. It just never transpired. Distributed manufacturing doesn’t seem to be able to move from prototyping to large-scale production. 3D printing Metals, the companies offered to retail investors – surprise, surprise! – have failed miserably.
Thank You SPAC Godfather. General 3D printing, none of these business models have really proven to be as lucrative or disruptive as we had hoped.
Now I’m going to leave you with a video on Desktop Metal. It’s probably one of the most popular 3D-printing stocks out there. Give that a watch. Make sure to subscribe to our newsletter. The links in the comment section. Thanks so much for taking the time to watch this today.
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