3D Printing and Long-Term Profits

Last week, I got an email from one of the readers of my investing service, The Wealth Advisory. I’d just written about one of our positions that hasn’t been living up to expectations. And my reader, Gloria H., wanted to know what about this company made me so sure that it was a good long-term investment.

First, let me start by telling you that this was a poorly timed investment. I had been watching the stock for several months and it had gone on an incredible run — up nearly 82% on the year.

That was a pretty big run compared to its industry peers, so I was holding off until I saw the stock track back down to a more reasonable level. After a 15% correction, I made the call and we entered our position.

I thought I had timed it pretty well. The stock started to move up almost as soon as we bought. But the market always likes to remind us when we’ve gotten overconfident in our ability to time it. And that’s exactly what happened here.

The correction continued after that bounce we got. And our investment ended the year down over 20%.

But there are still both short-term and long-term catalysts that make this a desirable investment, and I’m still very bullish on the company in question. And that’s exactly what I told my readers in an update last week.

That’s what led to the following request. Gloria H. wrote:

I purchased SSYS and watched it go to $130. I sold as soon as it dropped below $100. The products take too long to make, and the strength needed to keep them from collapsing from outside pressure is questionable. Explain what is being done about these problems that would make SSYS a reliable investment. Thanks.

Well, first off, thank you, Gloria, for asking. I relish every opportunity to help my readers as much as possible. And having active members like you makes that possible.

So, to answer Gloria’s question, I want to talk about the company and its industry in my article today.

A Blast from the Recent Past

In the early part of this decade, analysts and newsletter writers across the globe were pumping the 3D printing industry. It was going to change the world overnight. It was going to revolutionize everything from manufacturing to health care. And every little company in it was going to give investors a quadruple-digit profit.

For a while, those claims were true — at least the ones about the massive stock gains. With thousands of analysts so bullish on the industry, investments flooded in. And every company with a hand in the game saw its stock price balloon.

Between January 2010 and January 2014, industry behemoth 3D Systems (NYSE: DDD) saw its stock go from around $7 to nearly $100, a 1,167% gain. The other big name in the game — the biggest at the time and the company currently in question — Stratasys (NASDAQ: SSYS) saw even more profit come rolling in. Its stock went up nearly 1,700% in the same period.

But when those earth-shattering changes didn’t occur, and when the interest in this new technology started to wane, stocks came crashing down to earth.

DDD lost 94% of its all-time-high value. Stratasys dropped from over $130 a share all the way down to less than $15. And they fell even faster than they’d risen to those meteoric heights.

But the changes those writers and analysts were predicting kept on coming. They just came much slower than the writers predicted and investors had hoped.

Contraction and Expansion

The thing was that 3D printing was an extremely new technology. And it was also extremely expensive. It needed time to advance if it was really going to be as widely used as those writers had claimed.

Over the past four years, it’s done exactly that. Back in 2014, when stock prices started their rapid decline, there were tons of companies in the industry. And each of them had a specialty. Some were working on metal printing tech. Others were focused on big projects like those in the automotive and aerospace industry. Some were even focused on 3D printing of organs and medical devices.

But with revenues falling and stock prices crashing, many of those companies were nearing death’s door. They needed massive inflows of capital to keep their businesses running.

And that’s when DDD and SSYS stepped in to go on a shopping spree. By May 2015, DDD had spent around $200 million scooping up over 50 smaller competitors. Stratasys didn’t buy as many companies, but instead went after bigger targets. It shelled out well over $2 billion for nine companies. But those nine companies gave Stratasys a leg up on DDD in the printer manufacturing market. 82% of its targets were making 3D printers. Only about 18% of 3D Systems’ purchases fit into that category.

While all this buying was going on, however, Stratasys was also growing organically. It stepped up research and development spending by 135% to $122 million in 2015. And much of that spending went into creating software that makes the user experience much more enjoyable and that makes the process of creating a template and printing a finished product much easier.

Now, Stratasys is the industry leader in an industry that’s projected to grow by 25%–26% a year for the next five years.

Massive Growth

You see, even during the down years for 3D printing stocks, demand was still growing for the services and products the companies provided.

And it’s projected to grow much more in the near- and long-term future. More and more engineers, designers, architects, and entrepreneurs are using 3D solutions for primary designing and product modeling. And many companies are using 3D-printed parts to reduce weight, cost, and production time. Biotech companies are even using it to print medical devices and organs.

In fact, a recent report from MarketsAndMarkets suggests the industry could grow to $32.78 billion by 2023. That’s a compound average growth rate of nearly 26% a year.

And, as the biggest player in the field, Stratasys stands to see massive revenue growth as the industry more than quadruples in size from just two years ago.

In 2015, 3D printing was a $5.165 billion industry. And Stratasys controlled 13.5% of the market. That means, without even growing its market share, SSYS stands to see revenues over $4.4 billion in 2023. That’s 557% growth from current levels.

And as all the cost synergies from its acquisitions fall in line, that’s going to mean massive earnings growth to drive stock prices much higher.

Capturing Customers

But I’m convinced that Stratasys will have an even bigger market share by that time. And it’s because of the massive partnerships it’s been inking over the past years. Those are helping the company capture even more of the market with every big-name company that comes on board.

Stratasys already has partnerships with Ford, Boeing, Siemens, Schneider Electric, Boom Supersonic, and United Launch Alliance (ULA). And it recently inked new ones with Airbus and Phillips.

Look at those names. Automotive industry? Check. Energy? Check, check. Health care? Check, check, check. Aerospace industry? Quadruple check.

Some of the biggest names in the biggest industries are already using Stratasys’ technology to streamline production, reduce weight, increase strength, and grow market share.

Just the fact that Boeing, Airbus, Boom, and ULA are using 3D-printed parts should show you that a lot has changed since 2014. The parts are stronger than metal. They’re strong enough for Boeing and Airbus to be comfortable putting them on jet airliners. Strong enough for Boom to use them on its supersonic transport. Strong enough to be launched into space.

And as far as speed is concerned, there are two other partners that really drive home the point of how fast Stratasys’ printers have gotten. Both Team Penske in NASCAR and McLaren Racing collaborated with Stratasys to print parts for their racecars.

McLaren even has a Stratasys printer in its pit at Formula 1 races. And how fast does Stratasys have to be to turn heads at these two racing companies? Well, just consider that the average pit stop in NASCAR takes about 13 seconds. The average time to pit in Formula 1 races? Around three to four seconds. That’s really fast. Really, really fast. Some teams even have it down to under two seconds:

And both Penske and McLaren trust Stratasys printers to be able to keep up. If a part breaks on the track, they print a new one, pit the car, replace the part, and send the driver screaming back onto the track.

Moves into metal and composite plastics have led to much greater strength from 3D-printed products. And a half a decade of R&D has made the printers easier to use and much faster at completing a project.

Bottom Line: I’m a Buyer

I see some very big things in the future for Stratasys. I liked the stock at $27. I like it even more at $23.

This is the top company in an industry that seems to have been forgotten about by many investors. And it’s an industry that’s poised to grow by tens of billions of dollars in the next five years.

Stratasys is presenting Q4 earnings and revenue early in March. Management has beat expectations in three out of the past four quarters by an average of 134%. I’m sure we’re going to see that continue in March.

For the most recent quarter (4Q17), I see revenues up about 12% over last quarter. I see earnings up around 85% over last quarter thanks to cost-cutting strategies and synergies. For the full year (2017), I see 60% earnings growth over 2016.

Going forward, I see even more growth. I’m looking for 140% year-over-year earnings growth next quarter. This year (2018), I’m looking for 40% earnings growth over 2017. And over the next five years, I expect Stratasys to outpace the industry and hit an average growth rate of 35% per year.

We’re finally going to see the earth-shattering changes we were promised back in 2010. And they’re going to be even bigger than the most bullish analysts were predicting.

Last, but not least, if you’re interested in more research like this and more long-term investments promising big returns, I recommend you take The Wealth Advisory for a test drive. Not only do we keep our investors up to date and informed about market conditions and all our recommendations, but we’ve been beating Wall Street by leaps and bounds since the service was created. We’re currently up 700% over the S&P 500’s returns. And we’re continuing to grow those winnings every day.

To your wealth,

To your wealth,

Jason Williams

@TheReal_JayDubs

Angel Research on Youtube

After graduating Cum Laude in finance and economics, Jason designed and analyzed complex projects for the U.S. Army. He made the jump to the private sector as an investment banking analyst at Morgan Stanley, where he eventually led his own team responsible for billions of dollars in daily trading. Jason left Wall Street to found his own investment office and now shares the strategies he used and the network he built with you. Jason is the founder of Main Street Ventures, a pre-IPO investment newsletter; the founder of Future Giants, a nano cap investing service; and authors The Wealth Advisory income stock newsletter. He is also the managing editor of Wealth Daily. To learn more about Jason, click here.

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