For the past several years, I’ve sounded a bearish tone on 3D printing stocks, including industry leader 3D Systems (NYSE:DDD). As it turns out, that bearish tone has rung true. From my first bearish take on 3D Systems stock in August 2017, the stock has lost more than half of its value.
It may be time to take off the bearish hat and put on a bullish one. 3D Systems stock could be in the early stages of big growth over the next few years.
As renowned growth investor Matt McCall pointed out, the growth outlook for the whole industry is rapidly improving amid multiple technological breakthroughs and societal changes. According to Matt:
The bottom line is that 3D printing is on the cusp of major growth that will be driven by necessity, rising demand, and advances in 3D scanning and imaging in the $12 trillion global manufacturing sector.
I agree. And I think that this major growth outbreak over the next decade warrants a good look at DDD stock at current levels. Here’s why.
3D Printing Is Proving Its Value
Let me be clear. I don’t think that 3D printing is ever going to wholesale replace the current manufacturing process or disrupt global supply chains. This isn’t a trillion dollar industry in the making.
But, I do think that 3D printing will become a necessary part of every assembly line over the next decade.
3D printing still has huge shortcomings relative to molding, casting, and machining. Relative to those processes, 3D printing is slow, expensive, and not terribly scalable. It’s unlikely that 3D printing ever wholesale replaces these legacy manufacturing processes.
However, technological advancements over the past few years have proven that 3D printing adds value in other ways outside of wholesale assembly line replacement.
Since 2014, 3D printing has gone from a plastic-only, expensive, slow, and volume-constrained process, to a plastic-and-metal, less costly, much faster, and much bigger process. Specifically, there are now metal 3D printers, printing speeds have increased by up to 100%, and build volumes have gone from 10 x 10 x 10 centimeters, to 50 x 50 x 50 centimeters.
Because of these improvements, 3D printing has started to prove its value in the industrial manufacturing world. 3D printing is great for plastic prototyping, specialty parts manufacturing, quick re-tooling, on-demand parts customization, and much more.
Technological improvements will further drive costs down and printing speeds and build volumes up over the next several years. As all that happens, more industrial organizations will adopt 3D printing for specialty needs, and this industry will expand significantly.
Big Growth Ahead
According to 3D Systems, only 18% of industrial organizations have adopted 3D printing so far. By 2022, that number is projected to rise to 46%, thanks to the aforementioned drivers.
The industrial manufacturing world is $12 trillion large. Thus, 3D printers are expected to significantly expand their penetration into a $12 trillion industrial manufacturing market over the next few years.
3D Systems is a $900 million company. Connect the dots. You are talking about a $900 million dollar company with visibility to gain significant share in a $12 trillion market. Couple that with the fact that the management team at 3D Systems is hyper-focused on cost-cutting — operating expenses dropped 9% in 2019 — and what you have with 3D systems is quite promising.
Big revenue growth thanks to broader industrial organization adoption. Margin expansion thanks to scale and cost-cutting. Big profit growth on the back on big revenue growth and margin expansion.
If all that happens, then 3D Systems stock could be in the midst of a bottoming process before shooting higher over the next few years.
Bottom Line on 3D Systems Stock
3D Systems stock has been a loser for a long time. But the stock is now beaten up enough that, if the tide in industrial 3D printing turns in the next few years, shares could explode higher.
I think that’s what could happen. 3D printing adoption rates in the industrial manufacturing world could significantly improve thanks to technological improvements. The company’s revenue growth trends could turnaround in a big way. Margins could move higher. Profits could move doubly higher. And 3D Systems stock could run way higher.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he did not hold a position in any of the aforementioned securities.