Almost a decade and a half back, internet was the buzz
word in the market. The kind of value the internet stocks then created for
investors in so little time was completely unheard of in the stock market
history. So also the kind of value erosion that happened subsequently was again
something that can be compared to a Tsunami wave.
Although not in that scale, the current technology
buzz word is 3-D printing. The leaders in the industry, Stratasys Ltd. and 3D
Systems Corporation have a combined market cap of close to $9.50 Billion. When
we check the financials, the combined revenue of both the companies in 2012 was
only $714 million and profit of around $100 million. So the combined market cap
of the two companies stands at 13 times the annual revenue and 95 times the
profit. Are these stocks expensive and following the internet stocks trend
during the dot com boom? Although the answer to this question may not be very
straight forward, one point is very clear. Just like the way internet changed
the way we communicate or share information, 3-D printing will change the way
we manufacture things.
So what is 3-D printing? It is a process of
manufacturing a three dimensional object of virtually any shape from a digital
model. The digital model can be highly complex and be made using software like
CAD/CAM or simply by scanning an existing object. Just like a normal printer
prints a picture on a sheet of paper when we give a print command to the
computer, here the 3-D printer will make a 3-dimensional object exactly as we
find it on our computer screen.
The 3-D printers use an additive process of
manufacturing against a subtractive process being used by traditional
manufacturing process. In case of traditional process, certain material is
removed from a block of material in form of cutting or drilling to arrive at
the desired shape. 3-D printers use very thin layers of material and keep on
adding them to reach the desired figure. Different types of methods are used in this
additive process. Some methods melt or soften the material to make the layers,
some use material I liquid form and cure it or some use thin layer as input
material and then cut the layers to shape and then add those layers.
If assembly line technique of mass production gives us
the advantages of lowering the cost and time of production, 3-D printers gives
us the flexibility of producing any object of any shape and that too in our
living room on our desktop.
Although 3-D printing processes were invented in late
1970s, the printers were originally large in shape, expensive and have
limitations in terms of what they could produce. However over the last decade,
we have been witnessing tremendous improvement in the technology and also drop
in prices of 3-D printers. Fast prototyping, easy and quick manufacturing
option, and easy customization are the three most advantages of 3-D printing.
With such advantages of 3-D printers, they have
applications both for commercial as well as domestic use. If we think of its
applications, probably it has no limit. Virtually each industry has its use,
Construction, Medical equipments, Automotive, Aerospace, Dental, Jewelry,
Education, Consumer Products, and so on. It will transform the way individuals
or organizations work.
As per Wohler’s report, 3-D printer market will grow
from a little over $2 billion in 2012 to around $11 billion in 2020, i.e. a
CAGR of 23%. Looking at this opportunity more and more players are entering
this field. That will result in further improvement in technology and drop in
prices. If both Stratasys and 3D Systems grow at this rate for next seven
years, the combined revenue will reach close to $4 billion in 2020. If we
assume a net income margin of close to 20%, the present market cap still looks
little on the higher side.
So it seems the 3-D
printing has enormous potential and it is certainly going to change the way we
have lived our lives or the way we have manufactured different products.
Although the technology at present has limitations, especially in terms of what
it can produce, the future certainly looks promising. But the stocks don’t seem
cheap anymore. Apart from Stratasys and 3D Systems, ExOne is the other major
player in this hot field. 