After tearing up the stock market for most of the year, shares of 3-D printers are taking a major hit this week, thanks to short sellers.
A brutal attack from Citron Research called into question the reported revenue of German-based Voxeljet (VJET), which makes massive, industrial-caliber 3-D printers. The company went public on October 18 at $13, doubled on day one and then raced up to $70. But, thanks mostly to the Citron report, it’s been cut in half, trading down 13%, at less than $36, on Thursday.
Sure, someday we’ll probably all have amazing three-dimensional printers at home churning out cool toys and spare parts for the lawn mower. But it’s unclear which, if any, of the current crop of tiny startups that make the machines will be around for the win.
Collateral damage is hitting the entire sector, which had previously been one of the hottest in the market. ExOne (XONE), which went public in February, has lost 12% since Monday. Stratasys (SSYS) lost 9%, 3D Systems (DDD) lost 10% and Proto Labs (PRLB) was off 8%.
The potential uses for 3-D printing are seemingly unlimited and the devices have caught the attention of everyone from genius PhD students to old-car buffs. Like many previous technological marvels, the printers have improved dramatically, even as prices for the devices have plummeted. Amazon sells one of Stratasys's Makerbot printers for $2,200 with next-day delivery.
Risks of specialty sectors
Each of these publicly traded "pure play" companies has its own story and they are at starkly different stages of development, of course. But the coincident stock sell-offs should serve as a warning that the storybook tales that drive any such specialty sector can come apart in a hurry.
Voxeljet, which had been trading at a market cap of more than $1 billion, may be the least-developed of the bunch. It just reported third-quarter revenue of 3.5 million euros ($4.7 million) and net income of 211,000 euros ($284,000), or 0.11 euros per share (15 cents).
That represented sales of just three 3-D printers. But Citron pointed to a footnote disclosing that a portion of the sales were made with loans from Voxeljet and “research services to be received.”
“We’re not even sure such sales qualify as revenue — that would depend on who the parties are and the collectability of the receivables, but why ruin a good bubble,” the firm wrote.
Voxeljet didn’t respond to a request for comment on the report.
Other firms in the 3-D printer business are far more established, though possibly just as overvalued by the stock market.
ExOne, along with making industrial printers, runs 3-D printing facilities in the U.S., Germany and Japan. It almost hit breakeven in the third quarter on revenue of $12 million, up 36% from last year. The quarter’s net loss of $224,000 was down from $6 million in 2012. Still, the stock was trading at 116 times next year’s expected profit.
3D Systems is the big daddy of the group, rolling up all kinds of 3-D printer startups to form a mini-conglomerate with revenue of $136 million last quarter, up 50% from 2012, and net income of $23 million, up 51%. Valued at more than $7 billion, its forward P/E ratio is a relatively paltry 57 times expected earnings.
Stratasys, which sells the MakerBot printing set-up popular in schools, trades at 50 times next year’s projected profit, and Proto Labs at 44 times. The sector, except for Voxeljet, perked up a bit on Thursday but the warning to investors remains: Buying “pure play” stocks in a hot sector, whether its 3-D printers, solar panels or ethanol plants, may never give you the returns you're seeking.
Sometimes it’s the big companies, such as General Electric (GE), that capture most of the market, leaving the upstarts praying for an acquisition or tumbling into bankruptcy. Sometimes it’s a drop in demand or a change in government incentives. But when it's just a sexy narrative that inflates a group of stocks, a bad chapter can deflate them just as quickly.
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