Many investors probably consider 3D printing a loser space. This is understandable since the group's two best-known and longest publicly traded companies, 3D Systems (DDD -2.06%) and Stratasys (SSYS -2.07%), seem to have become experts at printing red ink. Their struggles growing revenue and turning a profit have resulted in their stocks performing poorly since peaking more than six years ago.
But writing off the entire group is a mistake. The global market for 3D printing products and services is expected to reach $40 billion in 2024, for a compound annual growth rate of more than 26%, according to Statista. That's just a little behind IDC's estimate that the artificial intelligence market will grow at an average annual rate of about 28% from 2019 through 2023. (You can read my picks for the top AI stocks here.)
Moreover, there are two lesser-known 3D printing stocks that have not only crushed the market so far in 2020, but have also outperformed over the mid-term and since their initial public offerings (IPOs): Proto Labs (PRLB -1.26%) and Materialise (MTLS -7.87%), which had their IPOs in 2012 and 2014, respectively.
A 3D printer at work. Image source: Getty Images.
3D printing stocks: Key stats
Before we get into our two winning 3D printing stocks, let's look at some keys stats for them, as well as for 3D Systems and Stratasys.
| Company | Market Cap | P/E | Wall Street's Projected 5-Year Annualized EPS Growth | YTD 2020 Return (Loss) | 3-Year Return |
|---|---|---|---|---|---|
| Proto Labs | $3.4 billion |
55 |
25% | 24.3% | 97.3% |
| Materialise | $1.4 billion | 265 | 63% | 40.2% | 97.5% |
| 3D Systems | $898 million | N/A | 10% | (13.7%) | (65.7%) |
| Stratasys | $995 million | N/A | 36% | (10.3%) | (35.5%) |
| S&P 500 | -- | -- | -- | (5.4%) | 33.1% |
Data sources: Yahoo! Finance and YCharts. Data to May 28, 2020. P/E is for trailing 12 months. YTD = year to date.
Wall Street analysts expect Stratasys to return to adjusted profitability for full-year 2020. Analysts don't expect Materialise to be profitable on an adjusted basis in 2020, but are modeling for it to return to such profitability next year.
It might surprise many investors that Proto Labs and Materialise are whipping big tech stocks like Alphabet and Facebook in 2020 and over the last three years.
Proto Labs
Proto Labs is a technology-enabled, quick-turn contract manufacturer. It's not a pure play on 3D printing because it has both traditional manufacturing and 3D printing capabilities. It produces plastic and metal prototypes and short-production-run parts to customers' specifications. The company has operations in the United States, Europe, and Japan.
Unlike 3D Systems and Stratasys, Proto Labs doesn't make 3D printers. The three companies are competitors, however, in the 3D printing services space. Proto Labs surely has the edge. It touts that its technology-enabled approach gives it the fastest turnaround speed in the industry. This is a huge competitive advantage because it helps customers move through the product development process faster.
In the first quarter of 2020, Proto Labs' revenue broke down by manufacturing service as follows:
- 48% plastic injection molding
- 33% metal CNC machining
- 14% 3D printing (plastics and metals)
- 5% sheet metal working
While the 3D printing business is a relatively small percentage of the company's total revenue, it's growing faster than the overall business, so it's on track to grow in importance. In Q1, Proto Labs' overall revenue grew 1.5% year over year -- a solid performance considering the last two weeks of the quarter were hurt by the fallout from the COVID-19 pandemic -- while 3D printing revenue rose 10%.
Materialise
If you're looking for a pure play on 3D printing, Materialise deserves your consideration. It has three segments: 3D printing software, 3D printing services, and medical. The latter business spans both services and software, and includes sales of 3D-printed medical devices.
The company seems to fly under the radar of many investors, at least those in the U.S., probably at least in part due to it being headquartered in Belgium. It's a shame that it gets overlooked since its stock has been a big winner.
The company is unique. Like Proto Labs, it doesn't manufacture 3D printers. And while 3D Systems and Stratasys both sell software, their software businesses are not as significant as Materialise's. In the first quarter, Materialise's total software revenue (the software segment plus medical software) accounted for 32% of its total revenue, and a considerably larger percentage of its total segment adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). (We can't determine an exact percentage since medical software profitability isn't broken out from overall medical segment profitability.) Its focus on software has been a key reason for its success over the years, and makes it as much a tech company as an industrial one.
Materialise gets another notable check mark in the plus column: It's run by its founder, Wilfried Vancraen. That's a 30-year tenure, as he and his wife founded the company in 1990. Studies have shown that stocks of founder-led companies tend to outperform. Vancraen is in his 50s, according to The Wall Street Journal, so investors probably don't need to be concerned about a near-term retirement.
Materialise is unique in the founder-led respect, too. 3D Systems and Stratasys have had considerable turnover in their C-suites. Proto Labs also looks solid from the leadership stability standpoint. It's on its third CEO since its 1999 founding, but that's probably only because its previous CEO passed the baton in 2014 after becoming very ill. Its CFO also joined the company in 2014.
