There was a time not too long ago when 3D printing stocks were the hottest thing in the market.
That time was late 2013, when 3D printing stocks were hitting all-time highs and being boosted by Dot Com Bubble type valuations. 3D Systems (NYSE:DDD) was a $90 stock. Stratasys (NASDAQ:SSYS) was a $130 stock. Voxeljet (NYSE:VJET) was a $40 stock. ExOne (NASDAQ:XONE) was a $60 stock.
But now it’s 2018 and times have changed and they’ve turned from gold to coal. Between DDD, SSYS, VJET, and XONE, all four 3D printing stocks have undergone a peak-to-trough decline in excess of 85% in 5 years.
What went wrong? A few things. Namely, no one actually needed and/or wanted a 3D printer in their home.
More important, will 3D printing stocks remain losers for the foreseeable future? I think so. The 3D printing industry is evolving to include a wider range of professional enterprise applications, but competition from bigger players is heating up.
Thus, whatever upside is left in the 3D printing market, companies like 3D Systems and Stratasys will be fighting with bigger players for a piece of it.
None of that implies good things going forward for 3D printing. As such, I think these stocks are doomed to fail.
Here’s a deeper look.
Mass Market Indifference Killed 3D Printing
In late 2013, 3D printing stocks were rallying on the idea that 3D printers were the next big consumer technology, and that like 2D printers, one would be found in every internet home across the world.
That never happened.
The sad reality about 3D printers is that no one ever really needed and/or wanted one in their home. 3D printing is a complex, laborious, and time-consuming process that isn’t designed for most of us.
The start-up and maintenance costs are high. And, the applications are narrow in scope for an every-day consumer. I can’t honestly think of a reason of why I’d want or need a big, clunky, $1,000-plus industrial machine in my home.
Apparently, no one else could either. To this day, most people still can’t think of a reason to own a 3D printer. As such, hopes for mass market consumer adoption have been killed and those stocks have dropped.
Industrial Upside Is Oversaturated
The death of the mass consumer market doesn’t mean the death of the entire 3D printing space. Indeed, the 3D printing space is actually doing just fine right now. As it turns out, 3D printing has promising professional enterprise applications across various industries, like aerospace, automotive, medical, retail, military/defense, and other professional services.
Because of growth in industrial applications, IDC recently released a report calling for 18% growth per year in the 3D printing industry over the next five years. IDC expects global 3D printing spend to grow to $23 billion by 2022.
That sounds exciting. But, let’s recall that IDC has historically been way too bullish about 3D printing growth prospects. A year ago, IDC expected the 3D printing industry to grow to nearly $29 billion by 2020 (more than 25% higher than the current 2022 forecast).
Two years ago, IDC thought the 3D printing market would grow to $35 billion by 2020 (more than 50% higher than the current 2022 forecast).
Thus, IDC’s report calling for 18% growth per year over the next 5 years should be taken with a grain of a salt. Growth will likely pan out around 10% per year, at best.
Even within that 10% growth, traditional 3D printing stocks aren’t all clear to grow.
Competition on the industrial side of things is piling up. Far bigger companies like Hewlett Packard (NYSE:HPE) and General Electric (NYSE:GE) are jumping head-first into this space, and have a very formidable presence.
The GE threat is particularly concerning, because GE is already an industrial conglomerate with its finger tips in many of the markets that are set to drive 3D printing growth.
Thus, despite ostensible upside through industrial applications, traditional these stocks will struggle to turn that upside into consistent revenue and profit growth due to big competition.
Valuations Are Too High
Surprisingly, the valuations on 3D printing stocks are still very high.
The average price-to-sales multiple across DDD, SSYS, VJET, and XONE is around two; that is fairly high. Apple (NASDAQ:AAPL), the world’s most successful consumer technology company with huge profit margins, trades at 4X trailing sales.
Thus, at 2X trailing sales, they are being valued somewhat in between Fitbit/GoPro and Apple. That seems aggressive, considering revenue growth at all of these companies ranges from 0-10%, and that none of them have a clear pathway to healthy earnings growth over the next several years.
This sounds a lot more like Fitbit and GoPro than they do Apple. Form that perspective, a 2X trailing sales multiple seems rich.
Bottom Line on 3D Printing Stocks
Mass consumer indifference killed in home 3D printing. Now, there is some hope through industrial applications. But, the industrial market is riddled with competition, and growth from here is far from a sure thing.
Meanwhile, the stocks are trading at multiples that are aggressive considering bleak go-forward growth prospects. Put it all together, and the outlook for 3D printing stocks to succeed is dour at best.
As of this writing, Luke Lango was long GE and AAPL.