Disclosure: I own DDD and VJET stocks.
For years, 3-D printing sounded like science fiction. But in recent years, 3-D printing and scanning devices have gained broad acceptance across a broad range of industries – turning science fiction into reality.
Gartner estimates that worldwide shipments of 3D printers priced under $100,000 will grow by 49 percent in 2013. Major industry players are expected to sell 56,507 sub-$100,000 3D printers this year. And that number is expected to double by 2015, as big product designers like Rolls-Royce are planning to use 3D printing for jet engine parts.
Investors have taken notice, chasing the stocks of four publicly traded companies: Voxeljet (NYSE:VJET), 3D Systems (NYSE:DDD), The ExOne Company (NASDAQ:XONE), and Stratasys (NASDAQ:SSYS).
The Consumer Electronics Association (CEA) has taken notice too. Last July it announced the 2014 International CES® will feature the latest developments in 3D printing technology from top players in the category, at its new 3D Printing TechZone.
The CES, which will be held January 7-10, 2014 in Las Vegas, has attracted interest from nine exhibitors for the 3D Printing TechZone — including 3D Systems, Makerbot Industries, Sculpteo, and Stratasys Inc.
Now comes the crucial question: Will the CES help 3-D printing cross the “tipping point“– the moment the virtual currency reaches a critical mass of users?
We cannot say for sure. What we can say is that for a product to cross the tipping point, it must undergo several stages, as described in the marketing literature by the Rogers Curve.
Everett Rogers argues that the diffusion of new products is a multi-stage process that proceeds in five stages: Awareness, interest, evaluation, trial, and adoption. In the beginning, product diffusion is slow — as “innovators,” a small consumer group, adopt the product. Then, product diffusion gains momentum, as “early adopters” — a larger consumer group — connected to innovators — adopts the product.
Eventually, diffusion reaches the early and late majority, creating a cascade, soaring sales growth — commercial success for the new product.
This means that products which eventually cross the tipping point follow the S-shaped or sigmoid curve, as observed in the diffusion of new durable products, whereby demand begins with a small group of consumers who appreciate the merits of the product; and then extends to larger and larger groups until it reaches cascade.
For 3-D printing to reach cascade, it will take two things: A broad awareness of the benefits of 3-D printing to different users; and a widespread adoption in micromanufacturing or “additive manufacturing,” as discussed in a previous piece here—see insert.
What should new investors do?
It depends on the risk-tolerance of each investor. As discussed in a previous piece, conservative investors may want to stay on the sidelines, waiting for a pullback, as the sector had a big run up in recent months and valuations are high. On the other hand, aggressive investors may want to initiate positions in the sector with a two-fold strategy, as analyzed in previous pieces. First, be selective—take a close look at the financials of each company. In this case, I would consider buying the shares of two market leaders: Stratasys and 3D Systems. I particularly like 3D Systems. It is still heavily shorted–a cushion in case the stock pulls back. These are the companies which have amassed both the scale and scope to continue their profitable growth. I would steer away from the other two smaller companies, which lose money.
The second strategy, advocated by Jack Alvin (Reading Minds and Markets) is to buy all major players. Strong growth, he argues, will lift all boats. In doing so, investors must monitor the forces that drive the industry’s growth, rather than the financials of different companies.
In studying the performance of four large retailers over the period 1993-2007 — Kohl’s, Target, Costco, and Wal-Mart — Alvin concludes: “As ever, buying an equal-weighted portfolio of all four companies would have been the best strategy, returning an annualized 19.4 percent with less risk. And of course, as I’ve already pointed out, you have to make and monitor one decision: whether the economy favors retailers in general.”
Applying Jack Alvin’s analysis to the 3D printer sector, investors should create an equally weighted portfolio of all major players: Voxeljet, 3D Systems, ExOne, and Stratasys. By buying shares of all four companies, the only trend the investor has to follow is the growth in 3D printer sales.
Source: Forbes Business