3-D Printing Stocks Are Still Running on Hype

Back in 2013 it seemed like a 3-D printer was about to become your next home appliance. That hasn’t happened, and the hot investing theme collapsed like a house of cards. Now the industry has shown us a new dimension as a crop of “additive manufacturing” companies are printing things ranging from food to tooth straighteners to organ scaffolds for human transplants.

The last time around the experts got the economics wrong. A study published in 2013 by an associate professor at Michigan Technological University determined that owning a 3-D printer was cost-effective for the average U.S. household, concluding that it would become a “mass market mechatronic device.”

Back then, a good-quality 3-D printer could run you several thousand dollars. And cost wasn’t the only hurdle: A 2013 at-home 3-D printer roundup by New Atlas, a technology and science publication, shared a disclaimer from MakerBot’s website: “Patience, know-how, and a sense of adventure required.” That was apparently too much to ask for most consumers.

This winter, 3-D printing companies experienced a surge reminiscent of the days when that earlier bullish prediction was making the rounds. By Feb. 9, the four best-performing publicly traded 3-D printing stocks had quadrupled on average from the beginning of the year. At their highs, shares of industry stalwart 3D Systems Corp. DDD 3.64% had more than quintupled while shares of ExOne Co. XONE 5.80% were up more than 570%. They have since shed much of those gains.

The GameStop effect played a role as a sudden wave of retail-investor interest squeezed skeptics who had sold the stocks short. SPAC mania, also on the wane recently, seems to have played a role as well. 3-D printing firm Desktop Metal’s $2.5 billion merger with a special-purpose acquisition company late last year sparked an industry fundraising frenzy. This year so far, privately held Markforged Inc. and Velo3D Inc. have each announced their intentions to merge with blank-check companies toward public offerings reportedly valued at $2.1 billion and $1.6 billion, respectively.

The Velo3D deal, in particular, turned heads more broadly with its growing list of celebrity backers. The company announced it will merge with Barry Sternlicht’s Jaws Spitfire Acquisition Corp. , which counts tennis legend Serena Williams as a board member. Star fund manager Cathie Wood’s ARK Investment Management reportedly doubled down on its investment in the SPAC through its Autonomous Technology & Robotics ETF. As of April 15, that fund also held sizable positions in 3-D printing companies Stratasys Ltd. SSYS 2.66% and 3D Systems.

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There are fundamental factors at play, too. 3-D printing companies saw renewed interest amid the pandemic from healthcare companies looking for help in producing medical supplies. The technology was able to help create nasal swabs, critical-care ventilators and face masks to bridge the gaps caused by supply shortages and delays from traditional manufacturers.

Tasha Keeney, an analyst covering 3-D printing investments for ARK Investment Management, said the $12 billion 3-D printing industry today could grow to over $100 billion in the next five years, noting the market for end-use parts is now just 1% penetrated.

Both Stratasys and 3D Systems are trading at fractions of their highs in 2013 and 2014, the last time the industry seemed on the precipice of a big bang. Has the sector’s recent tumble created an attractive entry point?

Probably not. While the design potential of the technology is certainly alluring, it remains to be seen whether the industry’s products are ready to go from prototyping objects to mass production. That becomes a problem when you consider that at least some of that change appears to be priced in. Most legacy publicly listed players are trading at significant premiums to where they started the year. 3D Systems, for example, now commands an 83% higher multiple on the basis of enterprise value to forward sales.

Fans are betting that the pandemic has forced companies to reconsider how they manufacture goods longer term, with some looking more toward onshore production to prevent supply issues and shortages. Analysts expect 3D Systems to boost sales annually for seven out of the next eight quarters and are similarly optimistic for growth at Stratasys. Both companies faced sales declines before the pandemic hit.

It is true that some companies have already made big bets on 3-D printing. As of December, medical device company Align Technology Inc. ALGN 1.33% said it was able to churn out over 700,000 unique dental aligners a day with the help of its technology.

But broader adoption for making end-use parts, as opposed to prototypes, will take time and may never transpire to the degree industry bulls have prophesied. Brian Drab of investment firm William Blair cautions that the opportunity is likely to remain relatively small, relegated to applications that require low-volume production, a high degree of customization and flexible material selection.

As evidence that we haven’t yet reached a watershed moment, he points specifically to 3D Systems’ fourth-quarter sales. The company said healthcare revenue increased by 48% year on year, but that dental applications such as aligners were responsible for more than half of that growth. Overall, sales grew just 2.6% compared with the year-earlier quarter.

In short, the industry could have three dimensions of cool but they just aren’t here yet. Your next Covid test swab may be 3D-printed, but your next car will remain mostly factory-made.

Write to Laura Forman at laura.forman@wsj.com

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