3D Printing Stocks Plunge – Will 3D Printing be Dominated by HP?
For the better part of two years, the 3D printing stocks of 3D Systems (DDD), Stratasys (SSYS), and ExOne (XONE) saw unabated growth and soaring stock prices. The market wasn’t paying attention to reality or accepting any potential threats or risks. Remember that in a normal market, a stock or sector of stocks that rise significantly typically attracts competitors and larger entrants from similar sectors. To an extent, too much success can create the ultimate downfall, as competition leads to lower margins. At the same time, fast growth and substantial profits will also drive in other entrants even if somewhat based on perception more than reality.
Just this week, the sector finally got confirmation that one of the biggest threats is going to come to fruition. Printing technology leader, Hewlett Hewlett-Packard Co. (HPQ) confirmed intentions to unveil revolutionary 3D products by June. The move was long speculated as a threat to the industry, but investors pushing the sector stocks up to absurd valuation multiples mostly ignored this certain risk.
With leader 3D Systems plunging some 40% since peaking at the start of the year, investors are faced with the reality that significant competition will begin in 2014. Long-term, new entrants will grow the size of the pie for the sector, but it doesn’t mean that 3D Systems or Stratasys will see higher stock prices anytime soon. Investors need to look no further than the natural gas shale boom and Chesapeake Energy (CHK) too see what happens to the leading stock when sector growth attracts more investments.
The concern for investors going forward is the limited research and development, or R&D, budgets of the sector leaders and the massive size of Hewlett-Packard. These limited budgets combined with industry growth that might not exceed 20% places these stocks in precarious positions after rampant stock gains in the last couple of years.