Following a steep decline in share prices since 2014, investors are largely ignoring 3D printing stocks, including 3D Systems Corp. (NYSE: DDD). However, that could be a long-term mistake. While the evolving 3D printing industry is going through growing pains, underlying demand for 3D printing in healthcare remains robust. Can healthcare sales propel 3D Systems stock higher?
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Image source: 3D Systems Corp.
A bright spot in a weak market
Demand for 3D Systems printers, materials, on-demand manufacturing, and design tools has been undeniably lackluster this past year. However, the performance of the company's precision healthcare segment is downright impressive.
The company's healthcare product suite includes simulation, training and planning, and surgical instruments and medical and dental devices printing solutions. In Q3, healthcare revenue grew 23% to $42.5 million. The growth in healthcare sales far outpaced sales growth in the company's other businesses; as a result, healthcare accounts for 27.2% of 3D Systems' total revenue now, up from 22.8% of sales last year.
3D Systems' record healthcare revenue was driven by customers' increasing their investments and expanding their use of the company's 3D technology.It has been a pioneer in developing 3D healthcare products, and it has invested heavily in the space -- including via mergers and acquisitions -- to establish a dominant footprint.
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The company's simulation and planning tools allow doctors to train, plan, and practice complex surgeries ahead of time, which reduces operating room surprises. Its printers are being used by healthcare providers to craft personalized implants, such as small joints for replacement procedures, instruments, and surgical guides. 3D Systems' solutions are also being used to create prototypes to shorten production times at bigger manufacturers.
More specifically, 3D Systems' Simbionix products allow surgeons to precisely replicate a patient's anatomy, and the company's PROcedure Rehearsal Studio allows providers to craft anatomical models based on CT images that can be printed in 3D. LayerWise is being used to print implants for spine procedures, and dentists are using DentWise to produce exact-fit dental restorations.
Image source: 3D Systems.
Healthcare's strength is a big reason why 3D Systems grew its year-over-year sales by 3% in the third quarter. Rising healthcare sales and cost-cutting efforts, including a reorganization that focuses the company on lucrative 3D markets such as healthcare, helped 3D Systems deliver non-GAAP EPS of $0.14 in Q3, up from $0.01 last year.
As healthcare sales grow to represent a larger share of 3D Systems' overall revenue, their impact should be even bigger in the future. Industry watchers expect the 3D healthcare market to increase at a compounded annual rate of at least 20% over the next few years, so it appears that healthcare's tailwinds aren't going to be fading soon.
Undeniably, healthcare demand for 3D technology solutions might not grow in a straight line, and slower sales of other products sold by 3D Systems could erase a lot of healthcare's benefit. Nevertheless, healthcare is a bright spot in an otherwise stormy 3D market, which is why rising adoption of 3D products and services makes this company much more intriguing to investors than it might otherwise be.
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Todd Campbell has no position in any stocks mentioned.Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned.Like this article? Follow him onTwitter where he goes by the handle@ebcapitalto see more articles like this.
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