3D Systems: Reality Check Just Weeks Away

Investors who like to bet that certain nascent technologies will go mainstream have pushed up 3D Systems (DDD) shares some 240% in the past two years, as seen in a stock chart. They’re about to get a much better idea of whether the company is worth all that.

DDD Chart

DDD data by YCharts

Staples (SPLS) said Friday it will become the first major U.S. retailer to sell the company’s Cube 3D printers in some stores in late June. Priced at about $1,300 and recently sold on Staples’ website, the printers turn designs into objects made of plastic. 3D Systems gains a continuing revenue stream with every sale because it also sells the replacement materials needed for them. The success, or failure, of these in-store sales will help investors answer a key question about 3D printers: are they just niche products for hobbyists and artists; or is this a product no home will be without?

3D Systems investors have struggled mightily with the question of 3D printer potential. On the one had, the technology could disrupt an entire manufacturing niche by allowing small businesses to skip the factories and make models and products in their own offices. (Some hearing aid makers already do just that.) Along with a big consumer demand, the shift to 3D printers would make them tablet-like inventions, with 3D Systems holding Apple (AAPL)-like dominance. If that’s the case, investors might happily overlook 3D Systems’ expensive share price. The shares for this $4.29 billion market cap company trade at a forward PE ratio of more than 46.

DDD Forward PE Ratio Chart

DDD Forward PE Ratio data by YCharts

On the other hand, if 3D printing doesn’t widely catch on, enthusiasm for the shares at such valuations could wane. Revenue growth, which is still forecast for about 32% next quarter, isn’t as grand as it once was. There are worries about operating margins as printer sales grow faster than its high-margin manufacturing services, like quickly manufacturing a custom part for companies like General Motors (GM) and Boeing (BA).

DDD Revenue Quarterly YoY Growth Chart

DDD Revenue Quarterly YoY Growth data by YCharts

Initially, Wall Street didn’t react well to 3D Systems announcement last week of a $250 million public offering, barely a year after a $100 million public offering. But the proceeds will be used for acquisitions, ideally for one or some of the fast-growing competitors in the business.

Dee Gill, a senior contributing editor at YCharts, is a former foreign correspondent for AP-Dow Jones News in London, where she covered the U.K. equities market and economic indicators. She has written for The New York Times, The Wall Street Journal, The Economist and Time magazine. She can be reached at editor@ycharts.com.

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