3D printing - A good investment?

I've been following the development of 3D printing industry for a few years now. I know the big players, Stratasys and 3D Systems have taken some hits in the market in the last few months. Is the negative trend an indication of a bubble or simply part of the maturing process of the stock?

 

Depends on your risk tolerance - we can't really say it's a bubble purely based on valuations, the industry would tangibly have to be a bust. I love Stratasys and think they're well placed to be a market leader but think that they're too steeply priced to be a worthwhile investment right now.

Just my .02

 

This topic has been discussed extensively- in summary, it depends on who you act

I'm on the pursuit of happiness and I know everything that shine ain't always gonna be gold. I'll be fine once I get it

I'm hope someone makes a 3D printer etf, but I don't think the industry is big enough for that. I think it's gonna be huge, but I don't know how to play it yet. I usually shy away from tech stocks because I'm a deep value guy, but I want 20% of my portfolio in 3D printing one way or another.

Competition is a sin. -John D. Rockefeller
 

There're actually 4 you can trade. SSYS, DDD, XONE and VJET with SSYS and DDD being the biggest players. Industry analysts are saying that this secular growth phase will continue in the next few years and sell-side analysts are quite optimistic as well.

The patent being expired next month will stir up the market for sure, just like how it gradually exploded during 2010-2013 after the major patent of SSYS expired in 2009 and MakerBot picked it up.

Nothing is true; everything is permitted.
 

Look at their P/S ratios. These will certainly play a large role in our lives, however expectations are very high. These are likely to come crashing in the first instance of slowed growth. Just something to be mindful of.

I'm on the pursuit of happiness and I know everything that shine ain't always gonna be gold. I'll be fine once I get it
 
AndyLouis:

ps i'm working inventing on inventing a 3D printer that can print 3D printers, don't steal my idea

See Gada prize and RepRap project.

Investing is great. Take advantage of the bubble. Don't buy a 3d printer.

 

DDD uses acquisitions to pump its share price. Uses that pumped up share price to issue more stock which funds more acquisitions. It's their main way to grow top line. Not sustainable.

The 3D printing wars is a wild west and you don't know who will win. I actually liked their earnings report this quarter because they're going the Amazon route with investing for the future. But overall, once a market correction hits DDD will be hit much harder than the rest of the market. I will wait for that moment to buy it (disclaimer, made $1000 off DDD and lost $1000 off XONE, hahaha).

SSYS is similar on a smaller level. But in the 3D printing wars, 3D has a better chance of succeeding due to its diverse product portfolio.

 

I would invest in 3D printing stocks for the long term. Its a niche industry that will change the age old manufacturing landscape. The question is, why haven't you invested?

 

The absence of relevant comps is precisely why you need a DCF..moreso because the timing of your cash flows are not uniform..you are burning a shitload of cash on capex to get the business up and running and then you have to build up your revenues and your operating margins will also likely improve over time. Thus you need a DCF on the FCF adjusted for WK and capex/growth and maintenance. Now, the key question is what discount rate do you use. I would look at that rate as the IRR an investor would look to get on the business assuming a 10 yr hold; the way to get that is either a cash on cash implied IRR, a 10 cash in 10 yrs, or a straight value of spread to the risk free rate; also looking at comp risky assets/industries to get their cost of unlevered equity..i say unlevered since no startup is taking on debt unless the owners don't know how to structure their BS.

 

Thanks for the response @"socola2003" I balanced out the MS someone threw.

Wondering if you could clarify something for me. If you have this product/ business as described, which is pre-revenue, and without similar peer companies/ product lines to estimate off then when determining FCF adjusted for WK & CapEx as you suggest - you are basically guessing, correct?

It isn't like estimating fcf for a mature/ mid size/ even growth (with peers) which has some basis so how would you go about building a defensible figure? If you have any resource/ reading suggestions etc. would be appreciated.

 

Respectfully, you don't use DCF for pre-revenue businesses for virtually any VC investment. In theory you can get to a value, but the point you made around endless assumptions is why it is useless. I've worked on 2 deals where CEO's or their bankers tried to push this valuation based approached and it was squashed in less than 5 minutes. I'd argue there's much more value in proving you have the connections and leads on actual revenue and experience effectively managing costs while scaling...

In my experience the initial valuation and funding is much more done off a mixture of how much money is needed, what are the comp % ownership given up for similar situations (not wildly uncommon for a very new type of business/product to be created). Pitchbook for example puts out reports for the average $'s raised and % given up by founders by stage and often by industry.

For example I did a deal with a very novel technology spun out of Harvard once that had about 500k in revenue with strong sales path to a big next year. The company wanted between $1-2m to cover the needed build out but weren't willing to give up more than 15% of the business. We ended up only giving 1.1m because we wouldn't be comfortable with the business having a post-money value higher than that.

Every case is unique but plain and simple early stage deals are very often a negotiation than a valuation methodology.

"If you want to succeed in this life, you need to understand that duty comes before rights and that responsibility precedes opportunity."
 

Valuable insight, much appreciated +1.

The more I'm reading around the more it seems the most important factor is having a good understanding of the market dynamics/ future potential for growth/ solid management in place (i.e. qualitative factors I associated more with public market investing) vs. model driven deal focus (with I would associate more with PE).

A quick question @"TheBigBambino" , at what point do you start to focus more on the cash flow and less on the more qualitative aspects. You mentioned the Harvard spin out at 500k being the latter, at what sort of stage would you try to put down more concrete estimates?

 

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