Image source: Stratasys.
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The 3D printing sector has seen huge levels of volatility in recent years. Stocks like Stratasys and ExOne initially soared on the hopes that the innovative technology would catch on and produce huge profits for their respective shareholders. Yet even though 3D printing technology has continued to become more prevalent and more widely used in industrial contexts, Stratasys and ExOne have seen their shares plunge as the hoped-for profits from the sector haven't yet materialized. Now, bargain-hunting investors want to know whether either of these stocks is a smart buy. Let's look more closely at Stratasys and ExOne using a range of common metrics to evaluate their merits.
Stock performance and valuation
The 3D printing industry has suffered big declines across the board, and Stratasys and ExOne have taken hard hits in their stock prices. Stratasys has fallen 42% since June 2015, bringing its two-year losses to more than 80%. ExOne has held up better over the past year with just a 16% decline, but it has lost almost three-quarters of its value since mid-2014.
The losses that both companies have suffered make it impossible to use simple earnings-based metrics in order to judge relative valuation. However, using a couple of revenue-based measures, you can get a sense of which stock might look more attractive. The larger Stratasys has a somewhat better-established business, and it currently trades at just less than 1.6 times its most recent annual sales over the past 12 months. The smaller ExOne has a much higher valuation based on current sales, with a P/S multiple of 3.8.
With high-growth companies early in their history, it sometimes makes sense to take debt into account rather than looking solely at share price. Looking at the ratio of enterprise value to revenue serves that purpose, and again, Stratasys looks more attractive by that standard as well. Stratasys' current enterprise value is just 1.2 times its trailing revenue, compared to a multiple of 2.9 for ExOne. By that standard, Stratasys looks like a more attractive play than ExOne.
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In judging most companies, a look at how they return capital to shareholders can be useful. Here, though, neither Stratasys nor ExOne pays dividends or has made stock buybacks. Therefore, what makes more sense is to look at capital moves that could hurt shareholders. Often, companies that are going through tough times turn to secondary stock offerings, which can be dilutive and cause share prices to go down.
ExOne resorted to such measures early in 2016, announcing a $13 million offering of stock in January. The company sold roughly 1.42 million shares for $9.13 per share to Rockwell Forest Products, a company controlled by ExOne CEO Kent Rockwell. That price was $0.50 per share higher than the closing price on the trading day before the offering, but it still boosted RFP's stake in ExOne at the expense of other existing shareholders.
Stratasys, meanwhile, has made only minimal offerings. The company issued $2.9 million in shares in 2015, but the move was in connection with stock-based compensation plans among Stratasys employees. By choosing not to raise extensive amounts of capital through equity sales, Stratasys has arguably treated its shareholders better than ExOne.
Growth prospects and risk
Lately, 3D printing companies have been in survival mode, working to boost revenue while keeping costs under control. In its most recent quarter, Stratasys managed to limit sales declines to just 3%, and it narrowed its GAAP net loss by nearly 90% on a per-share basis. The company took its biggest hits in the system arena, where customers have cut back on spending and are buying smaller, less profitable desktop machines rather than the higher-end systems that help differentiate Stratasys from its industry competitors. However, Stratasys did report encouraging results in supplies, service, and aftermarket products, showing that those who buy 3D printers are using them and expect to continue to do so. Cost-cutting measures haven't yet resulted in earnings growth, but they have the potential to do so in the near future.
ExOne, meanwhile, has tried to celebrate the progress it has made recently. In its first-quarter report, ExOne said that revenue rose by 24% to hit a new record, but at only $8.4 million, the company remains extremely small. Backlogs of $16.4 million show customer interest in ExOne's product line, but like Stratasys, most of ExOne's success is coming from non-machine sources such as materials and services. Cost-management efforts are ongoing, but with operating losses of $5.3 million on such a small revenue base, ExOne is facing serious financial challenges that will distract it from pursuing its longer-term growth goals.
At this point, neither Stratasys nor ExOne stands out as a clear bargain based on their future prospects. Stratasys appears to have a better-defined strategy going forward, and its cheaper valuation and larger size gives it advantages over ExOne. Even so, investors in the 3D printing space should proceed with caution regardless of which stock they prefer.
The article Better Buy: Stratasys Ltd. vs. ExOne originally appeared on Fool.com.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Stratasys. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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