We last wrote about 3D systems 6 months ago, just as they announced that Staples was going to start selling their consumer grade Cube 3D-printer. Since then, the stock price has gone up another 50%, and the 3D printing hype seems to have hit an all-time high.
At a Glance: Symbol: US-DDD Price: $74.81 Market Cap: $7.69B Yield: N/A
As I mentioned in my original 3D Systems post, this was a play in the 3D printing space – as it continues to be a difficult space to understand who the leader will be and in what application (consumer printing, manufacturing, medical, etc.). However, it’s clear than anyone who has invested in the 3D printing has benefited:
Over the past 2.5 years, investments in the two largest players (SSYS & DDD) have both led to 400+% gains. Even pink sheeter Organovo Holdings Inc (ONVO) – a play on 3D printing in the medical space, which I was not aware of – is up close to 500%. Newcomers this year (via IPOs) have investors jumping on the bandwagon with XONE (100% in 8 months) and VJET (25% in 1 month) providing incredible returns.
However, as an investor, it’s time to put an end to this hype and let logic prevail. No doubt 3D printing has received a huge amount of press – whether it be from its potential growth and use across multiple applications in the future; or even such as the negatives – as being able to print parts of guns. What all of these companies haven’t been able to show though, is the financial growth to go along with the perceived growth in use of 3D printers. Looking at DDD, while revenue has risen significantly over the past 2.5 years, the company hasn’t been able to reward shareholders with increased earnings; and any earnings growth the company experienced, is being wiped out by share dilution.
The above graph makes it look a little deceiving as Yahoo! Charts doesn’t let me adjust the axis – but the % growth of revenue vs. EPS shows the clearer picture:
This lack of earnings per share growth has led to a ridiculous growth in the P/E ratio as the stock continues to rise:
Think the markets are the only group hyping 3D printing? Even IT research and advisory firm Gartner has 3D printing at the “peak of inflated expectations”:
So where does that leave this author?
While I believe 3D printing will have it’s day in the future, that day is certainly not today (at least from an investment perspective) – especially given all the hype surrounding the technology and the lack of results shown by any of the “big” companies in this space. If I wanted to continue investing heavily in this space, I would probably at a minimum switch my investment from 3D Systems (which has a little more focus on the consumer) to either Stratasys or ExOne who are more focused on the manufacturing/commercial space where it seems like there is at least more growth.
Having already sold portion bit by bit on the way up, I really just have the last chunk of DDD shares remaining that I am looking to unload. The plan: use options to make some additional cash from the hype while waiting for my shares to be sold. This week, I sold the Jan 14 $75 for $8.00 which means on January 18, 2014:
|Price >= $75||Equivalent of selling for $83 ($75 + $8 call premium) ~ 11% return in 50 days|
|$67 <= Price < $75||Still end up owning shares, can decide to write another call, or just sell the shares for the current price and pocketed the $8 call premium|
|Price < $67||Could happen if hype dies in the two months. Would still own shares and can decide to:
1) sell shares at significantly lower than $67,
2) do the covered call, or
3) even hold the shares if it had dropped far enough to revisit actually owning the shares again.
I’m hoping the price to stay in the $70-75 range so this process can be rinsed, washed, and repeated every 2 months for some extra income.