3D Print Multiples in Another Dimension

3D Print Multiples in Another Dimension

DAN GALLAGHER

March 3, 2014 4:00 p.m. ET

At first glance, it looks like investors’ enthusiasm for 3-D printing, so strong last year, has worn off.

But the valuations of two of the largest publicly traded companies in the sector by revenue,Stratasys SSYS -2.47% and 3D SystemsDDD -1.45% tell another story.

Shares of 3D Systems have fallen nearly 18% so far this year. But that only trims the top off a stock that surged more than 160% in 2013 and has more than quadrupled in the last two years. Stratasys’s stock, meanwhile, is down more than 7% this year. Its gain in 2013 was a comparatively modest 68%. Still, it has more than tripled in the past two years. The stock is now valued at more than 55 times forward earnings; 3D Systems is at 93 times.

The multiples are nearly the highest they have been in years. Investors seem to be banking on both companies not only continuing to deliver strong revenue growth, but also posting healthy profits, despite their stated plans to invest heavily this year.

That leaves little margin for error in what is still a relatively nascent business. The technology of 3-D printing carries great potential, especially as the capabilities of devices expand beyond polymer-based objects to other types of materials, such as metal.

But it isn’t a cheap business in which to compete. Both Stratasys and 3D Systems saw operating expenses surge in the fourth quarter compared with a year earlier. Stratasys said in its quarterly conference call Monday that costs will continue to grow “materially” this year. 3D Systems projects earnings to stay flat in 2014, saying on Friday that it is “prioritizing initiatives and investments” to grow the business.

Maintaining breakneck sales growth necessitates both companies being big spenders. But at these multiples, investors are assuming a lot of bang for each buck.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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