Materialise NV (ADR) (MTLS), is the latest publicly traded 3D printing company to take Wall Street by storm. Unfortunately, the storm rained on investors’ parade, and since the Materialise IPO in June at $12 per share, MTLS stock is down 30%.
Miserable performance has been the norm for the 3D printing industry this year, with big players like 3D Systems Corporation (DDD), Stratasys, Ltd. (SSYS) down 65% and 40% in 2014, respectively. ExOne Co (XONE), a $225 million small-cap player, has been slammed even harder, with shares off 73% year-to-date.
About the only winner in the once high-flying industry this year has been Autodesk, Inc. (ADSK), which has posted 13% gains in 2014, good enough to top the Nasdaq Composite’s performance by 2 percentage points.
The upside for MTLS stockholders? Materialise is most similar to Autodesk, which focuses on the oft-overlooked software side of 3D printing. The downside? Shares are woefully overpriced and analysts are singing Materialise’s praises, making individual investors vulnerable to big losses with this name.
Pacific Crest, Canaccord Are Bullish. But So What?
MTLS got a lift yesterday, rising 4.5% after Pacific Crest initiated coverage on the stock, giving it a $12 price target. While that number represents a 43% upside from Wednesday’s close, it’s not even the most wildly bullish Wall Street sell-side analysts had to offer. Canaccord Genuity, in October, gave a $15 price target to MTLS stock, which means that for that level to actually Materialise, the stock would have to gain a cool 80%.
Not gonna happen.
While there is tremendous growth potential in the 3D printing industry — applications for 3D printing human organs offer a glimpse into the possibilities — the market segment is still in its infancy, and it’s likely that a true winner won’t be known for years, once we see the industry actually starting to mature.
Materialise has the right idea. Instead of going against 3D Systems, Stratasys and ExOne in the consumer and industrial 3D printer manufacturing business, MTLS opted to focus on the software behind the machines. Pacific Crest’s Weston Twigg explained that Materialise’s interface works across printer types, making for a consistent experience and high-level functionality.
Unfortunately, going into software in an industry with inconsistent growth isn’t exactly analogous to how Microsoft Corporation (MSFT) became one of the best-performing stocks of all time. Autodesk is its closest competitor, and its recent growth levels aren’t encouraging. ADSK sales growth has been decelerating since 2012, and in fiscal 2014 sales actually fell.
With MTLS sales growth expected to be between 20% and 25% for the next few years, the stock’s current valuation seems dramatically overblown. At yesterday’s close, MTLS stock traded at about 140 times 2015 EPS estimates, making the $12 and $15 price targets a ridiculous 200 and 250 times 2015 EPS estimates, respectively.
Oh, and by the way, Materialise is a Belgian company, so its sales are denominated in euros and translated to U.S. dollars for investors in the ADR. That adds currency risk to the overvaluation fears, and with the eurozone in a tough spot and the USD/euro conversion rate at its highest level since 2010, MTLS is facing some serious headwinds.
Don’t be allured by the glowing analyst reports. Give this stock a year or two to gain its bearing and establish a growth trend before hopping on blindly.
John Divine is assistant editor of InvestorPlace.com. As of this writing, he held no positions in any of the aforementioned stocks. You can follow him on Twitter at @divinebizkid.
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