by Travis Johnson, Stock Gumshoe | July 24, 2012 4:31 pm
I do love it when newsletters are teasing themes that we’re familiar with (they tend to run in fads, just like everything else), and especially when they give specific dates by which you need to act in order to reap these fabulou rewards.
Not that the dates always really mean anything — sometimes they’re predictions by a newsletter that the company will report surprisingly good earnings, or that another good catalyst is on the way … but sometimes they’re also just the “deadline” for ordering the newsletter at a special discount price.
So I don’t think I’ll be letting the cat out of the bag too early when I say that Nicholas Vardy, in trying to grab new subscribers to his Bull Market Alert (about $1,000/year), is pitching the idea of 3D Printing or rapid prototyping — the same basic thematic push behind past teasers by Michael Robinson at Radical Technology Profits, the folks at the Motley Fool, and probably others who I’m forgetting (though to their credit, I think Dave Gardner at the Fool was the first one to push this idea hard and heavy in newsletter ads). I’ve also suggested some stocks in this space to the Irregulars, so I’m always curious to see which ideas in this relatively small universe are favored by the “gurus.”
Click on one of those links if you want the basic pitch about 3D printing, by the way — or if you want my take on it that I shared with the Irregulars last month you can see it here (make sure you’re logged in before clicking that link). Basically, 3D printing is a way of creating, you guessed it, three dimensional objects using, in most cases, something akin to inkjet printing (there are also “sculpting” versions that carve to create objects from a block, like your dentist will probably do next time you need a porcelain crown), and the companies in the business are those that make the 3D software and models and those that make the actual printers and supplies — mostly folks tease the printer/supply makers.
Here’s Vardy’s take on the basic theme — which is basically similar to past “next industrial revolution” teasers:
“The first industrial revolution began in Britain in the late 1700s with the mechanization of the textile industry.
“The second began in the United States in the early 20th century with the assembly line and the era of mass production. With each leap forward, an entire new class of wealthy investors also emerged.
“Today, the Economist argues, we are in the midst of the third industrial revolution. And I agree.
“Manufacturing is undergoing the same kind of disruptive digital revolution that forced music, movie, telecom, photography and publishing businesses to transform in fundamental ways over the last decade.
“And much of this tectonic shift in manufacturing is thanks to the rise of a ‘next generation’ printing technology. One that will surely reshape the entire industry.
“But here’s the best part… Much like with the potential of the Internet before the initial public offering of web browser pioneer Netscape in August of 1995, Wall Street doesn’t quite ‘get it.’
“However, they will soon. And when that happens, stocks in this next generation manufacturing sector could easily become subject to the kind of investor mania that Internet stocks did in the late 1990s….
“Once Wall Street wakes up, and the masses climb aboard the companies in this new manufacturing wave, those aboard prior to the world catching on stand to become filthy rich…. “
And the July 24 thing (that’s today, so I’m TYPING AS FAST AS I CAN! NEVER FEAR!) has to do with Q2 earnings for one of the companies in this business, so that’s a clue. Here are some more clues about this specific company he’s teasing:
“Take a Peek at the Company Itself
“A quick look at a couple of the key company metrics and it’s easy to see why investors in the know are so excited about it.
“It engages in the design, development, manufacture, marketing, and servicing of 3D printers and related products, print materials, and services. Its 3D printers convert data input from computer-aided design software or 3D scanning and sculpting devices to produce physical objects from engineered plastic, metal, and composite print materials.
“The company completed its secondary offering on June 14, selling 100M in shares at $27 per share. There have been rumblings in the past few weeks that major companies like Apple might be looking to buy out this 3D printer to enter into this “next-boom” industry.
“The stock itself is up 98.96%, year to date, and shows signs of continued improvement as 3D printing continues to take off. Performance over the last quarter reflected a 42.42% growth. And when results for Q2 are revealed on July 24, 2012, shares could see a huge bounce – reflecting the company’s ongoing industry-leader status.”
Well, the earnings aren’t actually going to be revealed today, according to the company — look for them in a couple days, on July 26 … but this must be 3D Systems (DDD — click for free trend analysis), one of the two major (and similarly sized) 3D Printer stocks. DDD is the one that has been a bit more successful, stock-price-wise, over the past several months, but both have certainly been good performers (the other one is Stratasys, ticker SSYS).
DDD currently trades at about 50X earnings, and about 25X next year’s expected earnings — the analysts are expecting them to report earning 27 cents in the second quarter when they report on Thursday, which would be just a hair more than this quarter a year ago, but overall earnings have grown very rapidly this year and, if the analysts are close to being on target, will be up about 50% over 2011 when the year is complete.
Stratasys, by the way, will report its next quarter next week on August 1 — and is currently a little bit more expensive on both a trailing and forward PE, with basically the same forecasted five-year growth rate (though, of course, they’re predicting five year growth trends for an industry that just had a real breakout earnings growth year … so it’s worth checking the forecasts if only to note that the two companies are thought to have similar growth opportunities, but the actual numbers are likely to be very wrong). SSYS has had the bigger news this year, with their merger with Objet that helped them catch up with DDD on a market-cap basis, but the two are very similar in most ways and are each others’ main competitors (there are other companies who make 3D printers or sell 3D printing services as a “cloud” or “subscription” service, too, but they’re not in the same league as 3D Systems and Stratasys.
While both DDD and SSYS rely largely on the same kinds of core customers — product designers who want prototypes, small-scale manufacturers who need rapid customization, using a variety of different technologies and advanced machines that can cost up into the hundreds of thousands of dollars in some cases — DDD is pushing more aggressively at the bottom end of the scale, with “home hobbyist” products built around its Cube printer and “Cubify” services that are trying to break into middle class living rooms with a $1,299 price and easy downloadable designs to get you started. That’s arguably a consumer breakthrough, though it’s also true that there have been lots of home 3D printers available for quite a while, most of them built from kits or requiring more of a “tinkerer” mindset to set up and use (the Cube clearly borrows its user experience and aesthetic from Apple, which is probably a good thing). So when we hear from DDD on Thursday, probably what analysts will perk their ears for more than anything else are projections about sales of these Cube printers (they’re selling now, new orders face about a six week backlog), despite the fact that they’re not going to impact the bottom line for at least a little while. Who knows, maybe these will be the hot Christmas gift among the McMansion set this year — and presumably the prices will keep dropping over the next few years so the hoi polloi can get a taste, leading to what these companies are undoubtedly hoping will be “Hewlett Packard Part Two” as they eventually drop the printer prices down to “loss leader” status in order to churn out more and more of the material cartridges that will bring in huge profit margins.
So I can’t say whether DDD will again report blowout numbers in a couple days, but I can say that this is the company Vardy is clearly teasing here — and I am sympathetic, which won’t surprise folks who know that I suggested DDD as the “buy first” pick among this group last month due, largely, to concerns about dilution with the the Objet/Stratasys merger and DDD’s slightly better growth rate and valuation, though actually over the five weeks or so since I shared that opinion SSYS has done a little bit better than DDD. These are expensive growth companies, and buying either is a bet on continuing adoption and higher-volume use of these “printers,” with DDD arguably a bet that is likely to have a more prominent consumer component and thus, perhaps, slightly more recognition among retail investors. If you’re betting on the broader trend, though, don’t lose yourself too much in the company specifics — both are good and growing companies and pioneers in the industry, and unless you’re an expert on the nitty gritty of the slightly different product lineups and technologies offered by one or the other company it’s probably safer to buy the trend by spreading your investment across both companies … or, as with the Motley Fool’s past recommendations, adding in a software firm as well — the two prominent ones are Dassault Systemes (DASTY) and Autodesk (ADSK), the Fool has singled out Dassault.
And to end on a skeptical note, this has been a recent breakthrough ten years in the making — both DDD and SSYS have been under-the-radar companies serving a small clientele for many years, not growing or making much money, so the biggest bet you’re making with an investment in either of these companies is that this niche is growing pretty quickly, and that revenue growth for these printers and supplies will be well into the double digits (hopefully 20%+) for many years, with that revenue growth helping to also increase profit margins over time. It’s not guaranteed, but I do agree that there’s a good chance that last year’s growth breakthrough represents an inflection point for getting these technologies into rapid growth mode.
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