Like many newer technologies on the brink of breaking into the mainstream arena, there’s been a lot of buzz about 3D printing. In fact, the FDA just approved the first-ever prescription pill that will be “printed.” SPRITAM, expected to become available in 2016, is used to treat a variety of seizures in people with epilepsy.
The 3D-printing process allows the manufacturer, Aprecia, to make the pill more porous, so it really does melt in your mouth when you take a sip of liquid. This is a big deal not only for those suffering from seizure disorders, as the pill is smaller and easier to swallow, but also for the pharma industry. The layering process used to manufacture the pill can allow for specific dosing, which opens the door to customizable medicine and may even change how doctors prescribe medications.
Investors are very curious about the doors this technology may open in the future, so I’d like to share my thoughts on one of the major players, 3D Systems (DDD), and whether the industry is finally ready for prime time.
As far as game-changers are concerned, 3D printing (also known as additive manufacturing) seems to fit the bill. The process creates a solid three-dimensional object from a digital model by successively layering materials in different shapes. This is a very different process from traditional machining techniques, which rely on drilling and cutting to remove materials. 3D printing has the potential to become a game-changer for manufacturers because it allows for the simplification of assembly lines and for more parts to be manufactured at the same factory as the finished product, as opposed to being outsourced. This greatly reduces the cost of labor while also increasing efficiency.
3D printing allows for a number of ground-breaking innovations, particularly in personal health care. Beyond the new prescription pill, we’re talking things like 3D-printed dental trays, customized surgical stents and — potentially in the long term — replacement parts for your organs.
But (and this is a big but!), stocks like DDD have yet to prove themselves as viable investments. 3D Systems, which provides manufacturers with 3D printers and the materials needed to utilize them, has gotten hammered this year. After a strong Q4 in 2014, DDD was impacted by fears of overvaluation and operating profit margin compression. Those fears played out in the first half of this year, and the company has become a target of short-sellers.
As a result, the stock went over a cliff and is down nearly 60% this year, reflecting expectations that the company’s growth, as well as the selling prices for its hardware, will continue to fall. Currently, DDD sells at 37x 2015 estimates, which is certainly not out of line compared to other growth stocks, but the Street has some doubts about whether the company can truly meet these estimates.
While this is a sector with amazing potential that I will watch closely, I recommend avoiding 3D printers until they’ve proven themselves more convincingly. Another possible way to invest is on indirect plays, such as Faro Technologies (FARO), which is the “arms merchant” with crucial technology for 3D printers. Even so, FARO plummeted 26% in one day back in April after reporting earnings. The most recent report on July 29 was better, but the stock remains volatile and has traded mostly in a range ever since.
With a lack of strong catalysts, 3D printing is still not an industry I feel comfortable putting money into, at least not right now. That may change, as it is an absolutely fascinating industry, but fascinating doesn’t always equal profitable.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
