By Timothy Lutts, Chief Analyst, Cabot Stock of the Month
From Cabot Wealth Advisory 11/10/15 Sign up for Cabot Wealth Advisory—it’s free!
Remember the 3D printing stocks that were hot back in 2012 and 2013?
3D Systems (DDD) soared from 9 to 97, while Stratasys (SSYS) zoomed from 18 to 130.
Some of the advance was certainly justified. Both companies had demonstrated their ability to grow earnings year after year, and in 2012 and 2013, both companies enjoyed many quarters when revenues boomed more than 50%.
But look at the stocks today. Not only have both these once-hot stocks been trending down for nearly two years, but even the market’s latest strength hasn’t served to bring them to life. The sellers (some finally giving up after two years) still overpower the buyers.
What went wrong? And why are these stocks still in the doghouse?
First, the high profile of the stocks attracted momentum investors, who bid the stocks even higher and then sold when the strong uptrend ended. And second, the industry grew more challenging, as competitors popped up and competitive pricing took hold.
But both companies kept on growing revenues the whole time! In fact, it wasn’t until the third quarter of this year that both companies finally posted negative revenue comparisons.
Interestingly, even though there are many differences in the companies’ technologies and business models, there are many similarities from an investor’s perspective. Revenues are similar: $151 million for 3D Systems in the latest quarter versus $167 million for Stratasys. Market valuations are similar: $1.1 billion for 3D Systems vs. $1.4 billion for Stratasys. And institutional sponsorship is similar: 306 funds own 3D Systems while 314 own Stratasys.
Lastly, after-tax profit margins are eerily similar: 0.5% for 3D Systems versus 0.4% for Stratasys.
One major difference is this: The CEO of 3D Systems resigned at the end of October. The CEO of Stratasys still has his job.
Now, sometimes, the exit of a CEO will prove to be the catalyst that reassures investors and gives a stock a new spark of life.
But not in this case. The fact that both of these stocks couldn’t rally even in the market strength of the past month tells me there’s little hope for the rest of the year (though there’s a chance they’ll enjoy a year-end bounce in December).
In hindsight, these stocks are both great examples of one of my favorite investing tenets. “A trend, once established, tends to last longer and go further than originally expected.”
And then there’s Hewlett Packard (HPQ), which has great experience in the 2D printing industry and says it will introduce a 3D printer in 2016. HP will be late to the party, but probably smarter for it.
Bottom line, DDD and SSYS are still stocks to be avoided.
If you want to own a stock that goes up, your odds are better in stocks that are actually going up!
And if you want some ideas in that vein, by all means take a look at Cabot Top Ten Trader, which every Monday steers you to 10 hot stocks with great potential to soar in the weeks ahead. Get more details here.
By Timothy Lutts, Chief Analyst, Cabot Stock of the Month
From Cabot Wealth Advisory 2/2/15 Sign up for Cabot Wealth Advisory—it’s free!
Stratasys (SSYS) and Three D Systems Corp (DDD) are the two contenders in the 3D printing industry. Both are very similar in both size and valuation, so either one could fill this slot. After researching both, I chose Stratasys because the stock, which is a bit older, acts a little more maturely. But if you get serious, feel free to examine and monitor both.
Stratasys, based in Eden Prairie, Minnesota, makes 3D printers that use three different technologies.
FDM stands for Fused Deposition Modeling. Invented by company founder Scott Crump more than 20 years ago, it involves laying down successive layers of extruded thermoplastic filament from the bottom up. It’s clean, simple and office-friendly, using the same thermoplastics used in industrial processes all over the world. You can make almost anything with an FDM machine, from heart valves and automotive parts to coffee mugs and toys.
Note: the wrench printed on board the International Space Station recently used FDM technology, but the printer was not made by Stratasys or Three D Systems. It was made by a small private California company named Made In Space that designed it to survive blast-off, to work in a zero gravity environment and to not pollute the atmosphere that astronauts breathe.
You can’t buy a Made In Space printer. But you can buy a Stratasys FBM printer on Amazon.com for just $6,000.
PolyJet is similar to inkjet printing but instead of jetting drops of ink onto paper, PolyJet Printers shoot out layers of curable liquid photopolymer onto a tray. End products can be extremely detailed, with smooth surfaces, and composed of diverse materials with a variety of colors and physical characteristics. That makes PolyJet is the ideal solution for prototyping.
WDM stands for Wax Deposition Modeling, and it’s most useful for dentists, who use it to create wax-ups, with a resolution of 5,000 to 8,000 dpi, which they then use to build crowns, bridges and dentures.
Computer design software files drive all these printers, in just the same way that your home or office printer is driven by files.
Now, unless you’re very young, you remember how 2D printing, once too expensive for the home, eventually became commonplace, as prices came down and down and down. Today, of course, the real profits in 2D printing are in the ink, not the printers—and the same will prove true for Stratasys over time.
Over the years, Stratasys has made several acquisitions, most notable Solidscape in 2011 and MakerBot in 2013, both of which still function as standalone subsidiaries. Also, Stratasys maintains Thingaverse, a design-sharing community to support MakerBot, and operates RedEye On Demand, a digital manufacturing service.
In short, it’s covered all the bases from a business point of view, building the foundation for a business that in time will see great recurring revenue stream from consumables.
Looking at the financials, I see that Stratasys has grown every year since 2007, with the exception of 2009 (the economy). It’s made a profit every year of the past decade. And going forward, analysts are looking for earnings growth of 22% for 2014 (the report is due roughly March 3) and 30% for 2015.
And looking at the chart, you probably remember when 3D printing stocks were hot—mainly 2012 through 2013. That run (which we call the Romance Phase) took SSYS from 18 to a high of 138, for a gain of more than 650%.
But after the Romance Phase comes the Transition Phase, where a stock pulls back, even though the company keeps growing both sales and earnings. Transition is natural; it happens because the Romance Phase simply takes a stock too high, and when all the Romance buyers have bought, the stock then settles back to earth, often over may months or even a couple of years.
For SSYS, the Transition Phase, settling back to earth, brought the stock from 138 down to 85 in May, and then down to 70, less than three weeks ago—for a correction of 49%.
That might be the bottom, and it might not, but eventually, SSYS is going to move into the Reality Phase, where the stock advances roughly in line with the company’s fundamental progress. So long-term, I think an investment in the stock is likely to work out very well over time. The ideal way to play it is probably to wait for more signs of strength in the stock, so you truly know the bottom is behind us.
In the end, it’s up to you. And if you’re not comfortable with that responsibility, I suggest you take a look at my Cabot Stock of the Month, where I recommend one great stock to readers every month, and tell then exactly how to play it.
By Timothy Lutts, Chief Investment Strategist and Analyst for Cabot Stock of the Month
From Cabot Wealth Advisory 8/26/13 Sign up for free Cabot Wealth Advisory
Today’s Revolutionary Stock is Stratasys (SSYS), one of the two leaders of the 3D printing business. We all remember how the desktop printing revolution changed our lives, so it’s easy to imagine what 3D printing could do, if it reaches the level of penetration of 2-D. The other company in the industry is 3-D Systems (DDD), and it, too, is worth investigating. Both stocks have been recommended by Cabot advisories, but Stratasys got the nod for this feature. Here’s what Mike Cintolo wrote about it recently in Cabot Market Letter.
“Stratasys is one of the leaders of the 3D printing revolution, a way for designers and engineers to do quick prototyping and production directly from computer CAD files. Revenue growth has been accelerating, including 116% growth in both Q1 and Q2 thanks to some acquisitions. Customers are finding new ways to use 3D printing, including while-you-wait dental crowns. Stratasys’s just-completed acquisition of MakerBot brings the largest maker of desktop 3D printers on board. MakerBot has sold over 22,000 hobbyist and craftsman printers since 2009, and gives Stratasys a strong base in consumer units as well as professional printers. Stratasys’ August 8 earnings report was a home run, and analysts now see the bottom line growing 33% this year and 37% in 2014.”
If you like the story, you could just buy some SSYS here.
But I recommend—at least—that you check out DDD as well. And if you really want to invest intelligently, I recommend that you become a regular reader of Cabot Market Letter, so you can stay on top of this stock and other leaders on a regular basis. More information.
Stratysis Corporation (SSYS): A stock to hold forever
By Timothy Lutts, Chief Investment Strategist and Editor of Cabot Stock of the Month
From Cabot Wealth Advisory 3/7/13 Sign up for free Cabot Wealth Advisory e-newsletter
In recent weeks, I’ve been writing a series called “Ten Stocks to Hold Forever,” featuring 10 stocks, selected by Cabot editors, that you might choose to, well, “hold forever.” You can find my background writing on the concept here.
The ninth stock is Stratasys Corporation (SSYS), and it was selected by me.
The company is one of the two leading players in the 3-D printing industry. The other is 3-D Systems (DDD).
Both are growing by acquisition, effectively locking up all the expertise in the industry. And I expect both to grow tremendously in the years ahead. But I’m choosing Stratasys over 3-D Systems for the simple reason that the company has no debt.
Stratasys is based in Eden Prairie, Minnesota. It was founded in 1989. And it’s grown revenues every year of the past decade but one (2009), when broad economic weakness brought modest shrinkage. It’s been profitable every year of the decade, too, though its earnings trends are messier, mainly because of acquisitions. But after-tax profit margins are improving, and in the last quarter of 2012, they crossed the 20% level, hitting 22.9%. In the same quarter, revenues grew 63% from the year before to $71.2 million and earnings grew 29% to $0.40 per share. Those are impressive numbers, and one more sign that the company is well managed and on the right track.
So what exactly is a 3-D printer?
It’s a lot like an inkjet printer. But instead of printing in two dimensions, on paper, it prints in three dimensions, building a real physical object. Stratasys uses two different technologies, FDM and PolyJet. FDM stands for Fused Deposition Modeling, and in this system, the machine creates parts by extruding molten thermoplastic in fine layers to build the part layer by layer. The PolyJet process also builds in layers, but using photopolymers, which are simultaneously cured by ultraviolet light.
And who uses 3-D printers?
Industries include aerospace, automotive, medical device, electronic device, military and educational.
Functions include building concept models, developing prototypes, producing manufacturing tools (like jigs) and creating finished parts for low-volume production.
The most important question of all, though, is this: Where is this industry going and how big will it get?
No one knows. Maybe 3-D printers will be in our houses someday, just like 2-D printers, which no one imagined 50 years ago. Maybe not. But there’s little question that as costs come down, the printers will find more uses in a wide variety of industries. And if Stratasys remains one of the leaders, as I expect it to, its fortunes will continue to grow.
As to the stock’s chart, that’s very interesting. When I chose SSYS for this list late last year, it was trading around 70, in a confirmed uptrend. In January, it hit 90. But in late January, both SSYS and DDD sold off on big volume, after a couple of analysts opined that the industry was in a bit of a bubble. SSYS bottomed at 60 a month later, and today it’s working its way back up, having released an excellent fourth quarter report early this week.
In short, while SSYS is no longer a leading stock, the decline since January has taken a lot of risk out of the stock and this looks like a decent buying opportunity for investors with longer time horizons, including “forever.”
For more information on Cabot Stock of the Month, click here.
From Cabot Wealth Advisory 12/3/12 Sign up for free Cabot Wealth Advisory e-newsletter
How do you find the next Apple?
For starters, you want a company that is not yet extremely popular, and a stock that has never been widely owned by institutions.
You want a company that is capable of getting very large, ideally by addressing a mass market. You want a company that’s well managed, though not necessarily making a profit yet.
Finally, you want a company whose stock is beating the market now!
This is an excellent indication that investors are accumulating shares, as their collective perceptions of the company’s earnings potential improve.
Here’s one to chew on.
It’s Stratasys (SSYS), a leader in the up-and-coming field of 3-D printing.
What’s 3-D printing?
3-D printing enables a user working from a digital file to quickly create a real 3-D item.
There are two techniques used by Stratasys. One is fused deposition modeling, which works roughly like an inkjet printer, but builds up layers. The other is extrusion. Both have their advantages. All told, Stratasys machines can build with 120 materials, including over 100 proprietary photopolymer materials and 10 thermoplastic materials.
Plus, the company has more than 500 patents (granted and pending), which is a great barrier to entry.
Located in Minnesota, the company has been in business since 1989 and has grown revenues every year of the past decade except one (2009).
Its after-tax profit margins hit a record high 17.5% last quarter.
And the stock is looking strong!
Yet there’s very little buzz about 3-D printing, and even less buzz about Stratasys!
Big users of the technology today are in the aerospace, automotive and industrial sectors, often making prototypes of new designs. 3-D printing has replaced many a skilled machinist.
But as costs come down, I see no reason that usage of the machines can’t broaden.
After all, there was a time when having a 2-D printer in your home was unimaginable. Can 3-D printing follow the same path, or will success for the industry come differently, by displacing current manufacturing techniques? The answer is unknown, which is normal.
But the stock’s strength says this is one worth looking at.
SSYS was recently recommended by Cabot Top Ten Trader, and you can stay updated on our latest opinion on the stock—while learning about other stocks with the potential to be the next Apple—by taking a no-risk trial subscription.
For details, click here.
7665 Commerce Way
Eden Prairie, Minnesota 55344
|Index Membership: N/A
Industry: Computer Peripherals
Full Time Employees: 1,100
2/2/15 Stratasys (SSYS): A top contender in 3D printing
8/26/13 Stratasys (SSYS): Revolutionary 3D printing
3/7/13 Stratasys Corporation (SSYS): A stock to hold forever
12/3/12 Stratasys (SSYS): Leader in the up-and-coming field of 3-D printing