A recent feature in Barron's magazine claims 3D printing technology holds promise but the stocks of 3D printing companies could fall by 80%.
The warning in my headline comes from the financial publication Barron's magazine which, in its 3-10-14 issue, warns that 3D printing stocks are wildly overvalued. The magazine points out that shares of 3D Systems are up 370% over the past two years, Stratasys is up 231%, and ExOne and Voxeljet are up 140% and 166% respectively since their initial public offerings last year.
Barron's says the technology does indeed have promise, but investors seem to be enthralled with these stocks because 3D printing has become a consumer item. Big mistake, Barron's claims. The aforementioned companies are strongest in industrial uses of 3D printing rather than the consumer space.
Barron's takes particular aim at 3D Systems, saying it has lately grown better at printing press releases than profits. Barron's points out the company has repeatedly missed its own earnings forecasts while lowering the level of what it expects to earn in the future. But the magazine says investors have made a habit of overlooking bad news from the company, and the practice extends to the community of financial analysts: Barron's says 14 analysts rate the company a buy, four rate it neutral, and just three think it should be sold.
Apparently the reason for all the enthusiasm stems from 3D Systems' 37% annual sales growth. But the company looks overvalued even on that score, Barron's claims. The stock currently trades at 13 times last year's revenues, making it the third most expensive technology stock in the S&P 1,500, behind only Facebook and Visa, Barron's says. Similarly, Stratasys, ExOne, and Voxeljet all carry double-digit sales multiples.
Barron's also reports a few eyebrow-raising facts about Voxeljet in Germany. It currently has a market value of $540 million, but sold a total of three printers in its most recent quarter for $2.5 million. But this beat the previous year's performance when the company sold just two printers, which were used equipment.
My favorite quote in the Barron's piece is from Whitney Tilson, manager of a hedge fund called Kase Capital: "These stocks are being valued as if this is the next coming of the iPhone and iPad combined."
All in all, Barron's concludes that a safer way to play the 3D printing movement is by buying stocks of software companies that have something to do with 3D printing but which are diversified into other areas.