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The wealth destruction occurring in 3D printing stocks is somewhat shocking. Wednesday alone, shares of 3D Systems (NYSE: DDD) fell by over 7% when it delivered a first-quarter loss of $0.12 per share and withdrew guidance, citing, in part, an “acute investment pause” by customers.
Shares of the once hot stock are now off 55% over the past year. And it’s not alone.
Shares of Materialise (NASDAQ: MTLS) are down 25% since the beginning of the year, as are shares of ExOne (NASDAQ: XONE). Stratasys (NASDAQ: SSYS) shares are down 56% year-to-date, and by 62% over the past 12 months.
It’s complete and utter carnage in the pure-play 3D printing stock market. And I think a lot of investors are legitimately wondering what the heck is going on.
After all, I think most of us believe that 3D printing truly is a breakthrough technology, and that it will change manufacturing and building industries forever.
Additive technologies are reshaping how things are designed and made around the world – not just in small batch production shops and do-it-yourselfers’ garages, but on massive assembly lines.
Understandably, the potential to have a 3D printer make all sorts of random things for the average Joe seems exciting. Need a lawnmower part? That’ll just take 10 minutes. Hinge pin? Five minutes.
Certainly, the potential for home use of 3D printing is huge. And within a decade I expect desktop 3D printers will be commonplace in homes across the U.S.
But the technology is likely to have a far bigger impact in the industrial sector. Massive multinational corporations are increasingly using 3D printing technology where it matters most – in production lines.
The benefits of greater speed, tighter tolerances and lower costs mean that 3D printers will be fully integrated into manufacturing lines around the world within a few years.
Rapid prototyping of a few units is no longer the main event. Dramatic cost reduction and manufacturing velocity are now on the table.
General Electric (NYSE: GE) is already using 3D for at least 10% of its manufacturing, and says that 50% is a realistic target in five years. Lockheed Martin (NYSE: LMT), Chrysler (NYSE: FCAU) and GM (NYSE: GM), just to name a few more, are also jumping on board.
The cumulative mass of companies moving in this direction means exponential growth in the 3D printing market is most likely on the way, even as pure-play stocks get crushed.
Today’s $4 billion 3D printing market is probably very small compared to where it’s likely to be in a just a few years.
It’s likely that the market will swell to $12 billion-$21 billion by 2020. McKinsey has even stated it sees a $180 billion to $490 billion market by 2025. That implies a market that will grow by 50 to 130 times over the next decade. That’s a huge range, but even the low end implies very significant growth.
It’s hard to precisely quantify the potential. But one thing does appear clear: advances in printing nozzle technology, printing materials (plastic, wood, metal, etc.) and printer software will power rapid adoption rates across nearly all industries – from medical, automotive and aerospace to energy and chemical.
For good reason this potential has made 3D printing a hot topic. And for a period it made 3D printing stocks even hotter.
Almost all of the publicly traded 3D printing stocks raced higher as a world of investors learned more about this market’s accelerating growth.
From 2010 to the end of 2013, 3D Systems rallied over 2,000%. Stratasys soared 640%. And ExOne Company surged over 300% after going public in late 2013.
These investments became almost a no-brainer – anybody that didn’t own a 3D printer stock was missing out.
Stratasys is now up “just” 110% since the beginning of 2010. 3D Systems is hanging on to a 495% gain over the same period, and that’s obviously quite a nice return. But it’s been all downhill since 2014. And anybody that bought after the beginning of 2013 is probably sitting on a hefty loss.
In the fourth quarter of 2014 something dramatic happened. The market stopped caring about these stocks. The honeymoon came roaring to a halt, and the once-hot stocks began their meltdown.
It appears now that the 3D printer market, or at least the stocks, got way ahead of itself. Maybe growth expectations just seemed too rosy. Or lofty valuations just got too high.
Regardless of the reasons, one thing remains clear if you follow the industry: the world is every bit as excited about the potential of 3D printing today as it was at any time over the past three years.
The stocks have just fallen out of favor. Hard. I think it’s because there is a big shake-up coming in the 3D printer industry.
The time of the little guys is coming to an end. Big companies are moving in as the industry moves from disruptive to sustainable growth.
It’s not as if 3D printing technology is going away. Quite the opposite. But that doesn’t mean the usual suspects are the way to play it.
Reports of new printers from industrial heavyweights that aren’t even currently producing 3D printers show tens of thousands of nozzles spraying millions of drops per second of powdered material that, in some cases, is strong enough to lift five tons.
Over the next 12 months I expect there to be major, market moving announcements related to 3D printing as the big guys get into the market. And in the meantime, this means it’s not worth going anywhere near the smaller pure-play stocks.
Like many investors, I made the mistake of trying to find value with the little guys. In January I took a shot at Stratasys, only to see the writing on the wall once it reported quarterly results.
Thankfully, I got my subscribers out soon after I got them in, with limited losses. The only mistake that would have been bigger than taking a shot was to hold and hope. When these stocks all reported first-quarter results it seemed even more apparent that the 3D printer market is waiting for the next big thing.
I think I’ve figured out who that will come from. And to be perfectly honest, the name probably isn’t that big of a surprise. But for the time being I still have to reserve the name, and research report, for subscribers. However, you can get my research with a free trial, and if you don’t like it, it’s easy to simply cancel your trial and keep the research.
Just don’t go buying any of the small-cap pure-play 3D printer stocks right now. Even if they appear tempting. There’s too much carnage with these guys, and too few catalysts that are likely to turn things around for them in the near term.
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