3D Systems: Too Much, Too Soon Or A Calculated Risk? February 2, 2013Posted by Ishmael Chibvuri in Latest Articles!!!.
In Search Of The Next Big Thing…
My primary interest when it comes to investing is identifying macro trends that can be invested against. For me, there are few feelings as satisfying as the moment my mind clamps onto what I think is going to be "the next big thing".
To date, my best moment came in 2003, when gazing down at my 15g iPod, I realized, what I really wanted, was for that sleek white beast to be my phone. Driving that desire, was my phone at the time, a Blackberry 6210, which I had nicknamed, the "Bacon Skillet".
My loathing of the "Skillet" with its clumsy interface and buggy software, coupled with a hellish experience attempting to repair a Bissell carpet cleaner, left me with an irrational hatred of Canadian engineering that persists to this day. But, back to my point – At the time I saw a very big opportunity for Apple (AAPL) in mobile phones, an opportunity that was far bigger than the MP3 market, and as a result, went in big on Apple at a split adjusted $11.33.
3D Printing: The Next Big Thing.
To see how 3D printing works, here’s a four minute mind-blowing example from National Geographic.
The same technique used to create the wrench in the National Geographic video can be used with a wide range of plastics, metals and even organic materials.
Now, here’s how 3D printing is being viewed by the manufacturing community. From the CSC Leading Edge Forum, Fall 2012:
3d printing is a classic disruptive technology according to the disruption pattern identified by Harvard Business School professor Clayton Christensen. It is simpler, cheaper, smaller and more convenient to use than traditional manufacturing technology. Current 3D printing technology is "good enough" to serve markets that previously had no manufacturing capability at all (e.g. small business, hospitals, schools, DIYers). However, the technology is not expected to flourish in traditional manufacturing markets for a number of years.
"Good enough to serve markets that previously had no manufacturing capability at all", is the key take away that I’m running with. While 3D printing currently has practical applications in automotive, aerospace, defense and healthcare, I still haven’t seen an application that will spur mass adoption (Remember, it’s the large macro trend I’m looking for).
DIY adoption, is currently niche at best, with key barriers being material cost, availability of a wide material spectrum, speed and broadapplications. While it’s beyond amazing that I can design and print a custom smartphone case, or robotic toy, I don’t think we’ve reached the tipping point of "got to have it" for consumers, or large scale/rapid adoption by industry. (It’s important to note that 3D printing, is not new – the first applications began in the 80’s – this technology is older than some investors.)
For some ideas on what’s being marketed in finished consumer 3D printing products and services:
My Robot Nation – Design and print a robot
FreshFiber – Personalized 3D Accessories for smartphones, etc
Sculpteo – Design workshop, 3D printing service and marketplace
FigurePrints – World of WarCraft figures and MineCraft 3D replicas
Shapeways – 3D printing marketplace and community
Urbee – Two-passenger hybrid car project
Taking A Look at 3D Systems
Now unfortunately, I’m not the only investor scanning the horizon for the next big investing opportunity. The importance of 3D printing is well documented in the media, with The Economist calling 3D printing, "The Third Industrial Revolution". For an interested investor, opportunities for a "pure play" investment are fairly limited, with two companies: 3D Systems (DDD), and Stratasys (SSYS) providing the best opportunity to invest in 3D printer manufacturers.
As an investor, I was interested in 3D Systems based on the company’s aggressiveness move toward the DIY and educational markets – the areas where I expect the broad market "Aha!" moment to occur.
Now, let’s take a look at the 3D System chart.
Clearly, 3D Systems stock price is benefiting to a great extent as being "one of the few investment games in town" for 3D printing, with a tremendous run-up since the start of 2012. At the same time, the company’s trailing EPS is not showing the kind of growth to warrant what has been a 13 month price spike.
The Big Fear: I’ll Miss The Next Revolution
Irrational emotions, whether directed toward Canadian engineers or stocks, rarely lead to healthy decisions. For a quick lesson, take a look at Apple’s chart over the past 10 years.
It’s readily apparent that an investor, who carefully monitored the market, had plenty of time to take a position in Apple during its run. For a long investor, the timeframe is in years, so getting the research right, for me, is the best way to sleep easy after I’ve taken a long position. (A prime example was the $200 to $98 move by AAPL 2008-2009).
I’m Waiting on 3D Systems
3D printing is an amazing technology that will revolutionize manufacturing beyond our ability to imagine – in healthcare, experiments of printing soft tissue are underway and may lead to printed veins and arteries for operations!
However, the "noise" from the media, the large number of interested investors and the slow maturation of the technology are likely to lead to over zealous price appreciation. Right now, I suspect 3D Systems falls into that category.
That said, given the amount of money currently in search of return, and the "noise" behind the technology – it is conceivable that 3D will continue to run, at this time however, given current growth expectations for the company, I’m not willing to make a momentum bet on the stock.
At this time, a possible strategy for an investor, especially if the stock continues to appreciate would be to consider taking a long straddle position for the earning release, Feb. 25, to take advantage of the stocks recent volatility.
In the meantime, I plan on ingesting any and all information on 3D printing that I can find. This technology is likely to change the way we view manufacturing, as well as lead to the development of products that still haven’t been imagined. I want to make sure I’m ready.