If you're following 3D printing stocks, you know that 2014 was a painful year for this space. 3D Systems , Stratasys , ExOne , Arcam , and voxeljet were down 65%, 38%, 73%, 49%, and 81%, respectively. It's important to keep in mind, however, that these drops followed big stock-price run-ups in previous years.
As 2015 begins, let's take a look at the valuations of these 3D printing stocks. Valuation means nothing in a vacuum, so we're also going to look at the stocks' projected growth rates to see if we can glean anything about which stocks seem most attractive.
Continue Reading Below
Valuations mattered in 2014 -- especially relative valuationsAs we entered 2014, I discussed why valuation mattered, especially relative valuation. Here's part of my takeaway:
It turned out that relative valuations mattered very much last year. Of the two leading companies, Stratasys started the year with considerably lower across-the-board valuations than did 3D Systems -- and its stock price dropped much less than did its prime competitor's in 2014. Likewise, Arcam was the most attractively valued of the smaller players at the start of the year -- and its stock price dropped considerably less than did ExOne's and voxeljet's. There was no escaping the 3D printing pain last year. However, had investors repositioned their portfolios at the start of 2014 by taking relative valuations into consideration, they could have escaped a decent portion of that pain.
Nonetheless, this doesn't mean that the same phenomenon -- the more attractively valued 3D printing stocks outperforming the others -- is going to repeat itself in 2015.
3D printing stocks' valuations as we enter 2015However, as we enter 2015, it should prove helpful to look at how these stocks stack up by valuations, as well as their projected growth rates.
Source: Yahoo! Finance; data as of Jan. 12.
3D Systems' and Stratasys' valuations are considerably more in line with each other than they were at the start of 2014. Both companies' valuations have come down drastically, though 3D Systems' has come down more. 3D Systems' P/S, P/E, and forward P/E were 21.0, 209, and 75.3, respectively, at the start of 2014 (Jan. 3). Stratasys' P/S and forward P/E were 16.3 and 58.3, respectively. (As is still the case now, Stratasys didn't have a trailing P/E because it wasn't profitable on a trailing-12-month basis.)
It's not surprising that the three smaller players -- excluding Materialise -- sport higher P/S ratios than the two leading companies: Smaller companies usually have higher valuations because it's easier for them to grow on a percentage basis, as their base numbers are smaller.
As we entered 2014 (as of Jan. 3), ExOne, Arcam, and voxeljet had sky-high P/S ratios of 21.7, 20.2, and 55.9, respectively. At that time (as is still the case now), Arcam was the only company that was profitable on a trailing-12-month basis -- its P/E ratio was 173. While Arcam's current P/E of 55.3 is somewhat pricey on an absolute basis, it seems reasonable given the company's solid growth year-to-date in 2014.
Materialise, which went public in June 2014, is an odd duck in the 3D printing realm, so its valuation is not very comparable to the others. It's a leading provider of 3D printing software and printing services; it does not manufacture 3D printers. The company grew revenue 16.3% in 2013, which is low for the 3D printing space. This is probably a main reason that the market is assigning it a considerably lower P/S ratio than the others. Nonetheless, it's profitable, has a well-respected CEO, and is worth keeping our eyes on.
The 3D printing stocks are still highly valued relative to the market, but compared to a year ago, their valuations are much more in line with those of other stocks that are fast-growing (from a revenue standpoint). For context, the P/S ratios for Tesla Motors, Salesforce,and GoPro are 9.1, 7.2, and 6.9, respectively. Tesla and Salesforce are projected to post revenue growth of 50% and 32%, respectively, in the current year. GoPro is expected to grow revenue 24% in 2015.
As to the "N/As" in the table:
- Stratasys was not profitable from a generally accepted accounting practices, or GAAP, basis over the trailing 12 months, so it doesn't have a positive P/E. This lack of profitability is due to the 2012 merger with Objet. Stratasys is expected to return to profitability in 2015.
- ExOne is currently not profitable, and it's not expected to be profitable in 2015. Furthermore, analysts don't foresee profitability in five years, which is why the company sports a negative five-year PEG. (ThePEGis the P/E divided by future growth estimates -- in this case, for the five-year period.) At this time, I'd agree with analysts' take.
- Arcam and voxeljet don't have many analysts covering them, so there are no forward estimates. Voxeljet wasn't profitable from a trailing-12-month standpoint, so it doesn't have a positive trailing P/E. Arcam, on the other hand, has historically been profitable, and there's no reason to believe at this point that it shouldn't be profitable in 2015.
A look at the other half of the equation: Growth projections
Source: Yahoo! Finance; data as of Jan. 12.
While ExOne's EPS growth projections for 2015 and the five-year period appear strong, the company isn't projected to be profitable five years out. (There aren't estimates for Arcam and voxeljet, as previously noted.)
The bottom lineI believe my takeaway from last year's article remains applicable: If you're looking for a good way to position yourself for long-term growth in the 3D printing space, consider the stocks' relative valuations when making an investment decision.
3D Systems and Stratasys now sport similar valuations (though Stratasys' five-year PEG remains considerably lower) and growth expectations. So there isn't a standout best choice among these two leaders using these metrics alone. However, I continue to favor Stratasys because it executed considerably better than did 3D Systems in 2014.
As for the smaller players, Arcam is notable. It's profitable, and its P/E of 55 seems reasonable given the company's solid recent growth dynamics. Furthermore, Arcam's P/E is only about a third of 3D Systems'. Materialise -- with its combination of unique product offerings, relatively low P/S valuation, and projected strong five-year average annual EPS growth -- also bears watching.
Potential investors still need to exercise caution in this volatile space. Just because the 3D printing stocks' valuations are more attractive than they were a year ago doesn't necessarily mean the pain is over.
The article 3D Printing Stocks: How Do They Stack Up by Valuation as 2015 Begins? originally appeared on Fool.com.
Beth McKenna has no position in any stocks mentioned. The Motley Fool recommends 3D Systems, Apple, ExOne, GoPro, Salesforce.com, Stratasys, and Tesla Motors. The Motley Fool owns shares of 3D Systems, Apple, ExOne, Stratasys, and Tesla Motors. 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.
Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.