what's up guys Ciaran here and you're
very welcome to the channel so we're
doing a lot of digging lately looking
for investment cases and the market is
fraught with our evaluations especially
the electric vehicle market where
investors are just flooding in to try
and buy up any electric vehicle company
one sector sector however that still
ripe with despair is the 3D printing
industry this is in stark contrast to
six years ago in 2014 when this industry
was also fraught with high valuations as
like most crazy bubbles of lust oh the
stocks came crashing down and then
simply fizzle sideways up until today so
I thought I'd dig a little deeper into
this industry and see if we could find
any nice investment opportunities I'm
hearing and seeing lots of things
through various sources that are talking
very industry 4.0 and how 3d printing is
going to lead the way needless to say
all this is peaked my interest for this
video I'm going to take a quick look at
the 3d printing market landscape and see
if I can see what all the fuss is about
I'm also going to take a look at a
3D printer stock from a company
called stratasys I'm looking at
stratasys because they're arguably
pioneers of the industry but their stock
is also incredibly beat down I put a lot
of time into writing, recording and
editing these videos so if you want to
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that's something you're interested in
then stick around
okay so let's firstly take a look at the
sector as a whole and I'll start by
taking a look at what Ark Invest think about
the industry because like most
innovative sectors they're usually my
first source to go to to get information
so Ark Invest  believes that this
industry is still in its infancy while
it's growing over the last decade to
take 40 to 50 percent of the prototype
market it still has not infiltrated the
end use parts market which our invest
believed to be worth 490
billion in market potential so let me
explain a little bit the difference
between the prototype industry and the
end use product industry so in the
prototype industry customers are only
looking for maybe one of, or ten of a
prototype to be made and historically
they would have had to pay huge costs to
get tooling made up to make these a very
small number of parts they would have
waited for significant lead times for
the tooling to be made and then for the
product to be made generally then they
would assess the physical prototype make
changes to the design and then it has to
go back and do iterations of this over
and over again and not only was this
costly and did it take a long time but
were legacy manufacturing methods they
were limited in terms of what they could
actually design it have to be designed
for a manufacturer essentially because
you could only manufacture certain
designs we treaty printing then
basically you can manufacture anything
it doesn't matter how it's designed in
terms of where to fillets are or where
the joins are etc it's also much
cheaper to produce very low volume so
you don't need to get tooling made up
one 3d printer basically make any design
so long as it's given the correct
drawing this means much cheaper
prototypes much shorter lead times so
it's no wonder that 3d printing
basically still 40 to 50 percent of this
market and I'm sure it's going to
continue to steal more the end use
product market end we're talking about
massive runs massive volumes and for
this market is actually much cheaper to
go and invest in the capital get your
tooling made get your molding machines
set up once you have all your
investments done then you can make huge
volume and you can recoup that over
months and years so you can understand
how 3d printing hasn't taken this market
yet but obviously our investors are
expecting this to happen so let's take a
little deeper and see what they think so
you can see that are expecting the
industry to grow from about 10 billion
in 2018 all the way to nearly a hundred
billion in 2024 the staggering growth
rate at 65 percent annually and are not
the only firm expecting growth within
the industry take Wohlers for example
well far less impressive than our canvas
forecast they're still expecting
significant growth in this industry each year
Wohler's releases this annual report on
3D printing industry and each year
they've upped their forecasts the 2019
report forecasts 15.8
billion in industry revenue for 2020
23.9 billion in 2022
and 35.6 billion in
2024 well it's not sixty five percent
come and annual growth it's still
massive growth what's really caught my
attention lately though is how 3d
printing has been in the media during
the pandemic the media has been awash
with stories of individuals and
companies making pirates and suppliers
for the medical industry they've made it
much-needed supplies like face shields and
made a lot of spare parts for the likes
of ventilators that the medical industry
would have gone without or always and
this really showcases the flexibility
provided by 3d printing one machine that
can essentially make any part as long as
it has a drawing this is in stark
contrast to legacy manufacturing methods
such as injection molding where big
heavy and expensive tooling is required
and it's only cost-effective as I said
to do massive massive runs so this kind
of press might shift a sentiment for 3d
printing as it reminds people of the
value proposition that 3d printing can
offer it offers the potential for
on-demand and flexible supply chains
that are sheltered from global risks
such as the one that we had and the
pandemic is made governments really
aware of just how fragile their supply
chains are I mean it's one thing being
with a $1000 iphone but it's
another when the medical sector cannot
even get a 10 cent swab to do tests
because the oil come from China and
there's no suppliers all this is now
likely leading to a retraction and
localization and more on-demand
localized supply chains
my bet is that 3d printing is going to
have a huge part to play in this supply
chain transformation that inevitably
going to come over the next few years
so while the revenue of 3d printing
stocks has been hit hard during the
pandemic I expect that they're going to
see tailwind over the next few years as
industries transform their supply chains
ok so now let's take a look at Stratasys
ok so some companies
they do better than others and Stratasys
as I said is one of the most beaten down
stocks in the 3D industy that I could
find the stock is currently trading at
$15 that's down 89 percent from its high
of 130 dollars in 2014 and if you
invested in to start all the way back in
2003 17 years ago your returns to today
would have been zero actually it'll be
negative when you're factoring inflation
so this is a really really bad
investment story for anybody who
invested in this company put on a
slightly more optimistic note and one of
the reasons that I'm looking at these
companies that Ark Invest actually own
25 percent of the company know
naturally when you look at the past
before onto this company you have to ask
yourself why I mean past performance
doesn't necessarily mean future
performance but I have to wonder if the
good people attract invest maybe know
something that we don't know and
actually I suspected to do and I'm gonna
tell you what you know in a minute
so a little bit about this company so
they claim to be the world's leading 3d
printing company pioneers of the
industry for over 30 years and they now
offer and and 3d printing solutions from
3d printers themselves to a wide range
of materials and various 3d printing
software solutions the industries they
serve include aerospace automotive
consumer products dental medical
education railway and art and fashion in
2019 stratasys produced total revenues
of 636 million and I came from products
and services I'd say but 70% of it came
from products and the other 30% from
services and they operate in America
Europe and Asia Pacific but
predominantly in America
now as I mentioned stratasys has
experienced a rather stagnant growth and
actually since 2014 year on year their
revenues have actually declined you can
see here on Yahoo Finance decline in
revenues since 2016 no the only upside
to this is you can look at their
negative earnings are actually
decreasing in terms of how negative they
are the company itself is trading for a
total market cap of 816 million and here
you can see
the stock price since the highway 130 in
2014
it's just crashed all the way down to a
price of $15 today in q1 of this year
then their revenue decline was even
exacerbated by the global issue and
revenues defined 14% year over year not
a great sign for a high road industry
all the same both the company's products
and services businesses experienced
year-over-year declines as of February
this year the company appointed a new
CEO and in the press release to phrase
our next phase of growth was mentioned
once or twice clearly showing that this
new CEO has one goal and that's to turn
this company around what's really piqued
my interest is an interview I watched
with Tasha Keaney who was an analyst
over at Ark Invest who covers this space
and when she was asked to there
Stratasys is declining revenues this is
the answer she gave Latasha I want to
start with stratasys which is basically
part of the 3d printing story what's
going on here I would think that this
would be in a lot of demand right now if
there's supply chain problems and
hang-ups for getting parts yes so so
stratasys is certainly one of the most
undervalued 3d printing companies it's
trading like a value stock but that's a
price to book ratio below 1 and what we
think clearly think is a growth industry
we think 3d printing is around 10 to 15
billion dollars today and it's its
market and it could go to a roughly 90
billion in the next five years so
there's there's two sides to this story
right now so 3d printing it comes in
it's very key and in a time like that
you know the current pandemic because it
basically allows you to it certainly in
plastics create parts cheaply and very
quickly so if you need a part fast and
you you don't want to wait for the
injection molded tool to print it you're
gonna look to something like 3d printing
so we've seen all those face shields
that have been 3d printed they're 3d
printing nasal swabs they're but but
they're also 3d printing on pieces of
actual medical equipment that's going
into hospitals because they need those
parts fast the the other side of this is
well what's happening with the other
traditional industries that are not the
medical space that are using 3d printing
and you know of course this is to buy a
3d printer that's a capital decision so
you would see sort of in the shorter
term some delay in those capital
purchases but in the longer term
certainly coming out of this pandemic we
think companies they'll be supply
shortages I mean we've already sort of
seen that as you know certainly start at
the auto industry and these more
industrial industries have started to
ramp back up after the shutdown period
there's gonna be supply gaps and again
if you need parts fast you're gonna look
to something like 3d printing in fact um
Airbus that's how they first got to
using Stratasys technology for some of
their parts they were in a pinch and
they needed the parts fast they still
use the technology today because it has
so many advantages it saves on cost it
saves on weight and that can be huge for
an aerospace player especially on the
margin side so so I think longer-term so
that's the story with 3d printing that
it helps helps you bring manufacturing
closer to home and it helps you solve
the supply gaps so I think you know
there'll be this this other sort of
burst that we'll see coming out of that
industry so why is the company been so
flat in its revenue for the last five to
six years I'm looking at the yearly
revenue between 600 700 million it's
actually decline the last couple years
coming into this are they not getting
big industrial customers to renew
contracts are they not figuring out the
perfect products to be printed on a
regular basis what's going on there yes
so to talk a little bit about the
history with 3d printing so you know in
the 2014-2015 period there's this
consumer hype phase the idea that
there'd be a printer in everyone's house
that never materialized
and we don't think it ever will in fact
the best use cases for 3d printing are
in industries like healthcare and
aerospace and those industries also
happen to be highly regulated and it and
it takes time for these companies to
work 3d printing into their
specifications and to get those parts
approved so I think investors coming out
of that consumer hype phase we're sort
of expecting a faster acceleration of
those exciting end-use part applications
parts that go into the final product
versus a prototype but it takes time so
I think
we are you know in terms of that
top-line revenue growth they've had this
period now where they've been able to
work with companies like Airbus like
Boeing and and work work their way into
those specification requirements and
those approvals and certainly you know
for in the medical space we've had
ensure the insurance codes for 3d
printed parts are a new thing you know
you can you can previously get coverage
on some of these 3d printed implants so
so we've really been laying those
backbones over the past few years so
again I think going forward that's where
you're sort of see you know those those
that work pay off so I'm not sure that
you but basically what I get from that
is that
Stratasys they've been putting in the
foundation for growth over the past
couple of years now I can speak to this
because I work in the medical and
pharmaceutical industries and in order
to change the manufacturing processes it
takes years because you need to validate
your new processes and you need to get
regulatory approval and this takes huge
amounts of work and huge amounts of time
and these industries are very very slow
to change so it makes sense to me that
if these industries started trying to
put 3d printing into their processes it
would take years for that to actually
lead to increasing revenues for
stratasys so I expect that Tasha knows
that is new or increased revenue streams
coming online in the future I can't
confirm this but it's just an indication
and have based on that conversation if
we look at earnings Stratasys has failed
to turn a profit over the past couple of
years but looking at the earnings as I
mentioned the level of loss has been
decreasing over time and it seems the
stratasys have been putting in the time
to make their organization more
efficient this trend of decreasing
losses shows a pact of profitability in
the future this is really echoed by its
recent announcement that is going to
layoff over 10% of its workforce and
while this is good for the bottom line
it doesn't really fill me in confidence
in terms of the growth they expect but
the announcement did lead to JPMorgan
analysts updating his price target for a
stock up to $22
forty-five percent upside from today's
price at fifteen in terms of margins
product close margin range around fifty
eight fifty seven percent and we can see
it applying for q1 it is year but again
that's explained earlier to the pandemic
the service margins are less they're
around thirty percent but because this
doesn't make up as bigger the business
as the products the average total rose
margin then kind of comes in around
forty nine percent so relatively
speaking this is a healthy enough margin
and it should be enough for Stratasys to
turn a profit in the future where
things get really excited in the end is
when we look at Stratasys balance sheet
which in my view is extremely healthy so
we can see here in terms of cash and
cash equivalents stressors have two
hundred ninety seven million in cash on
the books did short term deposits of
twenty eight million and then accounts
receivable of 115 letter inventories are
growing at one hundred and seventy two
million from 168 million last year
this isn't a great team to see really I
want to see declining inventories but
look it's not the end of the world if
you look at the non current assets then
such as properly planned good way let
cetera et cetera you get a total assets
value of 1.3 billion and we have to take
some of this with a pinch of salt but
it's still an impressive balance sheet
especially when you look at a lack of
liabilities and the lack of debt
this company has essentially no - which
is really really promising so I'm very
confident as stratasys can waiver
whatever storm comes after this pandemic
and hopefully be alive to see the tail
wind coming to this industry in the
future another positive story is that
Stratasys stratasys cashflow positive
and we can see it in q1 it is here they
generated cash flows of eleven point
three million so while it's not a large
it's still a cash flow positive which is
a very good sign what gets me really
excited about Stratos that's really it
is overall valuation so stratasys is
trading an extremely cheap price to say
as multiple with 626 million in revenue
2019 and at a market cap of eight
hundred and fifteen million they're
trading at just one point three times
earnings yeah where things get really
interesting
is if we minus the 300 million in
cash and cash equivalents that they have
on the books that are earnings multiple
drops to zero point eight so point a is
X or any star trading for now if we look
at it from a balance sheet perspective
they have you know 1.3 billion on the
books in assets and seniors are trading
for 850 million basically you're buying
this business at point six times total
assets so while the company isn't
growing it is in a growing industry and
it's very rare that you see a company in
a growing industry trading at these kind
of multiples this really is a value play
at its finest okay so it seems despite
the obvious growth in the industry
chances are struggle to see any growth
itself the future of this business is
not clear to me but there is a few
indications that this might be a
turnaround opportunity
the new CEO laying off 10% of its
workforce declining losses which might
lead profitability and future revenue
streams coming online well it's unlikely
that stratasys I want to end up
dominating this industry my expectation
is that the revenue and scope of the
industry is going to grow so much they
will provide stratasys with a place in
the industry and hopefully close in the
future do you are a possibility is that
stratasys ends up being a takeover
target for a larger company such as HP
or also trying to become leaders in this
industry if stratasys can turn it around
this could be a very profitable
investment as I said it's not often you
find a value play in such a high-growth
industry as with all value stocks though
there's a risk that this is a value trap
and honestly as it stands I don't have
enough information to make that call so
what I'm going to do is I'm gonna pick
up a couple of shares just because I
think it's too cheap ignore and I'm
gonna keep researching this company and
I'm going to keep researching the wider
industry and other companies within the
industry if I find a better opportunity
then I'll take us put potentially I
suspect I might end up doubling their
own our Stratasys if I find out more
good news or if more news comes out
about the company indicating
future growth or increased profitability
let me know what you think in the
comments below do you have any insider
information into this business or into
this industry that you can share I'd
really appreciate it also don't forget
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haven't yet thanks for watching and have
a lovely day
