How to invest in 3D printing
3D printing has been called the ‘third industrial revolution’ and it has a market that’s expected to be worth $35 billion in 2020. That doesn’t make 3D printing an easy target for investors. Here’s our guide to investing in the sector.
Its biggest name, Stratasys, has seen its shares plunge by 75% over the past four years, and the competitive landscape is changing continually.
3D printing, or additive manufacturing, is a process of adding and fusing materials under computer control to make three—dimensional objects from a digital file. It already serves sectors from manufacturing to aerospace, architecture to healthcare, and has evolved from a niche startup area into a maturing industry with investment from the likes of GE, Hewlett—Packard and Microsoft.
What has been called the ‘3D printing hype curve’ saw valuations soar, then plunge in 2015, as investors woke up to the reality that groundbreaking and innovative technology does not guarantee speedy commercial success. But in November 2017, Porsche and the venture capital arms of Microsoft and Siemens invested $30 million in 3D printing startup Markforged, whose customers include GE, Airbus and Ford. That came after GE snapped up two European players, highlighting how industrial giants are betting that the emerging technology will transform manufacturing.
‘Most of the pure—play 3D printing companies — including industry heavyweights 3D Systems and Stratasys have been struggling over the last few years to grow revenue and to turn a profit due to a widespread slowdown in demand for their products,’ according to The Motley Fool’s investing website. ‘Nonetheless, projected long—term growth dynamics for the industry remain very rosy. This means it's likely that at least one of the current crop of pure—play 3D printing stocks will be a long—term winner, despite increased competition.’
But how to pick a winner? Here are the current runners and riders:
- Stratasys (NASDAQ:SSYS) operates in the healthcare, aerospace, automotive and education markets, and is producing printed polymer parts for the Airbus A350 XWB aircraft. In 2017 it partnered with the UK’s Manufacturing Technology Centre.
- 3D Systems (NYSE:DDD) has a 30—year pedigree and produces a variety of 3D printers, including most recently for heavy—duty metal printing and for pain management in certain types of surgery.
- ExOne (NASDAQ:XONE) is the third of the US—based big three, providing 3D printing to industrial customers in several sectors and its printers can be linked together to enable mass production.
- Materialise (NASDAQ:MTLS) is a Belgian company founded in 1990 which boasts the largest team of software developers in the industry and customers across a wide range of sectors.
- Voxeljet (NYSE:VJET) is a German maker of industrial printers which listed on the New York Stock Exchange (NYSE) in 2013.
- Arcam (NASDAQOTH:AMAVF) a Swedish industrial metal 3D printing specialist now owned by GE and quoted on the Stockholm NASDAQ, it has seen its value hold up well since the sector boom of 2014. It has proprietary electron beam melting (EBM) technology, and its target markets include medical implants.
According to The Motley Fool, in 2017 Arcam was the only one of six pure 3D plays to have made money over the previous 12 months, but it was ‘extremely pricey’ on an eye—watering price-to-earnings (P/E) ratio (at the time) of 748. It cautioned: ‘so, only investors comfortable with volatility and truly long—term focus should consider investing in Arcam.
‘Investors should pass on ExOne and Voxeljet, as neither company has yet to demonstrate that it can profitably grow its business. Materialise, which was profitable before its 2014 initial public offering (IPO) and soon thereafter, remains a company to watch. It sells 3D printing software and provides 3D—printing services.
‘As for 3D Systems and Stratasys, while there are no guarantees, their industry—leading sizes and valuable intellectual property should help provide them with staying power.'
A fringe player is ProtoLabs (NYSE:PRLB), with around 12% of its revenue from 3D in the third quarter (Q3) of 2017.
Investing News Network suggests: ‘for the more risk—averse, another option is the 3D Printing Exchange Traded Fund (ETF) (BATS:PR). This ETF began trading in July 2016 and has 48 holdings (as of November 17, 2017) all of which are leaders in 3D printing and related businesses.’ Among its top holdings are the UK engineer, Renishaw. Pictet Robotics, an open—ended fund launched in 2015, includes 3D among its target sectors.
Analysts at Rathbones warn: ‘investors may be right about the potential of a particular technology, although many do not work out as predicted and are quickly superseded by even better — or cheaper — technology.
‘But you also need to identify how it will be adopted and which companies will profit. The dotcom crash of 2000 serves as an enduring reminder of the risks of believing the hype without appreciating how to extract value from the business model.’