Wall Street cheered 3D Systems’ (NYSE: DDD) better-than-expected second-quarter results, sending DDD stock sharply higher. But the best is clearly yet to come for the company and for DDD stock — 3D Systems is gaining strong footholds in multiple, huge sectors, and the large surge in its printer sales bodes very well for its results going forward. Also likely to boost 3D Systems and its stock are its new printers, which sound like they will be tremendous money-makers for the 3D printer manufacturer. Finally, the company is generating tremendous growth in Asia, and that trend should continue for some time.
DDD Stock Catalyst: 3D Systems Is Gaining Ground in Lucrative Sectors
3D Systems’ revenue from healthcare providers, which accounts for 35% of its overall revenue, jumped 26% year-over-year. As is well-known, the U.S. puts a tremendous amount of resources into its healthcare sector, and other countries also spend a significant amount of their Gross Domestic Product on healthcare. Moreover, many healthcare tools, like surgical instruments and dental products, have to fit exact specifications. As I wrote in a column earlier this month, focusing on 3D Systems’ peer, Stratasys (NASDAQ: SSYS), “I have believed for many years that 3D printing would be most widely adopted by the manufacturers of industrial products that are made of many complex parts, all of which have to be precisely made.” Given the characteristics of the healthcare market and 3D Systems’ previous success in the sector, the company’s healthcare revenue looks poised to continue to jump meaningfully going forward, giving DDD stock an additional catalyst.
And as I pointed out in another previous column, the military is another sector that’s likely to boost 3D systems and its peers. As I noted in that column, in May 3D Systems announced a deal to produce “high accuracy parts” for Navy ships, giving it a great foothold in the Pentagon and with U.S. military contractors.
Finally, the revenue of 3D Systems’ on-demand manufacturing business, which primarily provides prototypes to manufacturers, rose 6% YOY in Q2. The company stated that its investments had “helped drive improvements in our on-demand manufacturing business that will drive continued growth over the longer term. ”
Providing prototypes for the creation of highly complex parts certainly fulfills the vision for 3D printing that I mentioned earlier. Additionally, given the improvements that the company has made in its on-demand manufacturing business, and the tremendous amount of money that global manufacturers of cars and planes have, the unit’s revenues can certainly grow tremendously going forward. Finally, many manufacturers that buy prototypes from 3D Systems could eventually decide to buy 3D printers from it.
Speaking of buying 3D printers, the 41% YOY jump in printer sales last quarter certainly bodes very well for DDD and DDD stock going forward. The results of the company, which uses the razor and blade business model, should jump as the enterprises that bought the printers purchase materials for them from 3D Systems.
DDD Stock Catalyst: 3D Systems’ Promising New Printers
Also boding very well for 3D Systems and DDD stock are the very strong credentials of the new printers that it’s developing. For example, last quarter 3D Systems began shipping its NextDent 5100 dental printer, which, according to the company, is four times faster than its competition and reduces the amount of time needed to make dentures by 70% to 80%.
3D Systems also reported that its new Figure 4 printer, which also began shipping recently and is targeted at multiple key markets, “provides lower total cost of operations and faster time to part compared to similar systems.” Moreover, the machine “can reduce injection molding cycle times by over 40%, provide 20% plus cost savings, and increase production rates by 30% compared to traditional manufacturing,” 3D Systems stated.
Finally, the company said that it had received “excellent feedback” from customers and industry experts on its new, low-cost FabPro 1000 industrial desktop 3D printer, which also began shipping last quarter. Importantly, according to DDD, the new printers did not contribute significantly to the company’s revenue last quarter, meaning that the likely strong top-line and bottom-line boost from these new printers have not yet been realized. 3D Systems stated that it expects the revenue generated by these new products to rise slowly in the second half of this year before becoming “significant” in 2019.
DDD Stock Catalyst: Growth in Asia
Finally, 3D Systems’ revenue from Asia surged 38% YOY. 3D Systems explained that its Asia region began emulating practices that had been successful in other regions and that it had made a leadership change in Japan. More than likely, the strong growth in the Asia region will continue as these changes continue to improve the company’s results there.
3D Systems looks very well-positioned in three large, lucrative sectors, and its new products sound like they will give the company meaningful competitive advantages going forward. Finally, the company’s Asia business is expanding meaningfully and should continue to do so going forward. These strong positive catalysts will boost 3D Systems’ results and DDD stock significantly over the medium and longer terms. Consequently, investors should buy DDD stock at current levels.
As of this writing, Larry Ramer owned shares of DDD stock and SSYS stock.
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