3 Reasons 3D Systems Corporation's Stock Could Rise

By Markets Fool.com

Image source: 3D Systems.

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After two and half years of disappointment, 3D Systems (NYSE: DDD) is ready to turn over a new leaf. Under the new leadership of Vyomesh Joshi, a 32-year Hewlett-Packard (NYSE: HPQ) veteran with a track record of improving operational performance, the company has a fresh perspective on how to win the future. Going forward, 3D Systems will focus on operational excellence, growing the lifetime value of its customers, and investing in reliable and valuable 3D printing solutions.

The company has only had four months under Joshi, so his new approach hasn't had enough time to show results. However, if Joshi can prove that his turnaround plan is working, 3D Systems' stock could rise again. Here are three factors that could help that happen.

3D Systems repairs its reputational damage

Under the previous leadership of Avi Reichental, some of 3D Systems' professional and industrial 3D printers had ongoing quality and reliability issues, whichdamaged the company's reputation in the marketplace. In hindsight, it's clear that management was too distracted byReichental's overly aggressive acquisition strategy to properly enforce its quality control procedures.

During 3D Systems' second-quarter earnings call last week, Joshi noted that the company has been investing in repairing that reputational damage by hiring a supply chain and operations manager and incurring greater than expected warranty servicing costs. The aim of these investments is to improve trust and goodwill between the company and its customers, and communicate that management is taking a more measured approach when it comes to introducing new products. On the call, Joshi also suggested that he would rather delay a new product launch than meet a deadline at the risk of having quality controls issues.

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If these measures pay off, frustrated customers could become satisfied customers, and satisfied customers are more likely to expand their relationship with 3D Systems in the future.

Driving growth by expanding end-to-end solutions

An exoskeleton augmented with 3D-printed parts (white) for a customized fit. Image source: 3D Systems.

One of the bright spots in 3D Systems' second-quarter earnings was its healthcare solutions revenue, which increased 11.4% year over year to $38.8 million, even as overall revenue fell 7% to $158.1 million. Joshi believes that the company's holistic approach in healthcare played a major role in the segment's success. On a high level, 3D Systems' end-to-end healthcare solution enables customers to simulate, plan, rehearse surgeries, as well as 3D print surgical instruments, medical implants, and dental devices.

In other words, an end-to-end solution enables customers to manage their entire 3D printing workflow from conceptualization to final product. Not only does this approach appear to resonate well with customers who are looking for more than a 3D printer, it's also 3D Systems' blueprint for driving growth and remaining differentiated in the marketplace.

In the future, it plans to apply what it learned from building out its suite of healthcare solutions to its other three main target segments: automotive, aerospace, and consumer goods. If 3D Systems can replicate it success in healthcare in other key markets, the company is likely to improve its long-term growth prospects.

Competition packs more bark than bite

With the entrance of HP and Carbon3D into its space, 3D Systems faces increased competition. Carbon3D's M1 printer claims to be anywhere from 25 to 100 times faster than anything before it, while HP's Mutli Jet Fusion technology claims to be 10 times faster than leading extrusion-based and selective-laser-sintering technologies. Although there's been a growing concern among investors that these companies will threaten 3D Systems' competitive position, the magnitude of that threat remains unknown.

When asked about HP and Carbon3D, Joshi noted that both of these companies are initially offering their printers with limited materials and value-added solutions. He also emphasized that 3D Systems provides complete 3D printing solutions:

"So, both for Carbon and HP, I would put more emphasis on what kind of materials they are going to develop and what they are going to offer next year. Our strategy is going to be, we are going to be the company, where we will not only provide the materials and printers, but we're also going to provide the complete solution."

If Joshi's belief that customers want more than a 3D printer is accurate, the competitive concerns that investors are worried about could be overblown.

The bigger picture

Ultimately, the long-term success of 3D Systems -- and the direction of its stock price -- hinge on the performance of the underlying business, driven by factors that improve the demand of its products and services. If the company shows meaningful progress in these areas, it can help improve its value proposition in the marketplace, which in turn, may result in a higher stock price.

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Steve Heller owns shares of 3D Systems. The Motley Fool recommends 3D Systems. 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.