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Should Stratasys and 3D Systems Worry About Their Place in 3-D Printing?

- By Nicholas Kitonyi

Three-dimensional printing has been the topic of discussion for much of the last four to five years, with the majority of this debate being focused on what changes 3-D printing might bring to our daily lives. Discussions have ranged from health care to manufacturing to even redesigning and producing 3-D printed cars. This is all great talk, but while many uses have been covered already, there is still a huge chunk left to mull over. This is why Stratasys Ltd. (SSYS) and 3D Systems Corp. (DDD) remain appealing options for investors.


Stratasys is braced to announce its financial results for the fourth quarter and full year ended Dec. 31, 2016, on March 9. Conversely, 3D Systems is poised to release its fourth-quarter financial results on Feb. 28.

What is in the cards for these 3-D printing companies? Is there any cause for alarm about their place in the industry?

To begin with, both Stratasys and 3D Systems have volatile earnings histories that are characterized by incredible beats and marred by awful misses. That being said, there is little to separate these 3-D printing giants.

Interestingly enough, there is not much to separate Stratasys from 3D Systems when looking at the companies' income statements and balance sheets. In the last three quarters, 3D Systems generated $467 million in revenue and also showed a gross margin of 48.6%. The company, however, reported losses of up to $43.6 million.

Equally so, Stratasys reported revenues of $497.2 million in its first nine months of operation in 2016, thereby reflecting a gross margin of 47.1%. Unfortunately, the company also experienced some hefty losses along the way, $62.5 million to be precise.

This does not matter much though because neither company has a debt load. 3D Systems has $179.4 million in cash on hand compared to $239.3 million at Stratasys. Therefore, financially speaking, the two companies almost mirror each other.

It is all about strategy

Every company has something unique that only defines them. Some will talk of company ethics whereas others focus more on the image of the company. It is, however, unquestionable that all companies talk about strategy - plans they put in place to combat uncertainties of the market and to squash any doubts the future might hold.

Both Stratasys and 3D Systems are very much alike in this aspect as well. The companies make everything from small desktop printers to large production-scale printers. According to BestAdvisor, a platform that ranks technology devices based on specifications and customer feedback, their 3-D printers are at the top of the list.

Over the last few years, however, more companies have shown interest in joining the 3-D printing industry, including giant tech manufacturers, which makes the immediate future rather more interesting to observe.

Nonetheless, both Stratasys and 3D Systems corporate-focused strategies could yet be the difference between them and the increasing number of startups. Stratasys, for instance, has its efforts concentrated in the health care marketplace, which, according to analysts, provides a good opportunity for growth. This is primarily due to the increased demand in the health care sector with medical and dental printing taking the fold.

In addition, the company has also established partnerships with some of the leading industrial manufacturers. For instance, Stratasys has already partnered with Airbus (AIR.PA), Boeing (BA), Siemens (XTER:SIE) and Ford (NYSE:F) as it seeks to secure long-term revenue streams.

Undoubtedly, Stratasys and 3D Systems endured a mixed run of results in 2016, with record beats and abysmal misses experienced along the way. That being said, the companies' futures could not be shining brighter with projections suggesting the 3-D printing market certainly presents favorable long-term opportunities.

Data obtained from the Wohlers Report in 2014 revealed the worldwide 3-D printing industry was expected to grow from $3.07 billion in 2013 revenues to $12.8 billion by 2018 and exceed $21 billion in worldwide revenues by 2020, with a compound annual growth rate of 34%. According to a more recent report by TechNavio, however, the expected CAGR is now projected at 18.94% through 2019. This indicates a slowdown in the outlook for the industry.

Conclusion

Some of the catalysts for the 3-D printing industry are expected to come from increasing demand for the technology in the automotive consumer products, government and defense, industrial and business machines, education research, medical, dental and other (arts and architecture) segments.

Being the industry leaders, a slowdown in industry growth prospects does not bode well for either company. However, an improvement in demand at the consumer level could make it interesting going forward.

Disclosure: I have no position in any stock mentioned in this article.

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This article first appeared on GuruFocus.