Forget the debate about Twitter and whether its post-IPO run-up is – or isn’t – justified by the profits it does – or doesn’t – make.
If you want the real ascendant to the throne of Next Big Thing for technology investors, look no further than 3D printing. The technology has been around for a while, to the point where even those barely familiar with the term have some anecdotal knowledge of the practice of three-dimensional objects being built – layer by layer – from a digital model.
With the variety of objects that can be made via 3D printing continuing to expand, the sector’s bulls see nothing but hyper-growth ahead.
And, as a recent Barron’s article noted, “the stock market action of these companies suggests that investors believe every home will have a 3D printer fairly soon.”1
For example, check out the recent performance of the 3D Printing motif, which has gained 20.4% just in the last month alone. That performance has helped lift the motif’s return to 49.2% since its inception January 11, 2013.
During those same time periods, the S&P 500 has gained 4.6% and 24.4%, respectively.
Individually, many of the sector’s stocks have performed in such a way that is practically insulting to the term “outperformance”: printer maker 3D Systems, for example, has seen its stock gain 134% in the past 12 months, awarding it a $7 billion market capitalization; Stratasys, with a $5.7 billion market cap, is up 85% in the last year.
As Barron’s noted, we’ve now reached the point where valuations are promising a trajectory rarely seen in corporate profit-and-loss statements. 3D Systems, for one, has a trailing 12-month price-to-earnings ratio of 169. Apple’s, for what it’s worth, is 13.
That’s not to say that there isn’t real growth happening here. A large part of 3D Systems’ 45% stock runup over the past month was spurred by the company’s late-October earnings, which saw the company boost its full-year revenue forecast to a full 49% above its 2012 total.2
But there’s nothing wrong with a healthy dose of caution. As the Barron’s article pointed out, Next Big Things in technology can be a little funny. How many investors in 2000 were positive that Microsoft, Cisco, Motorola, and Yahoo would be front-and-center in shaping the tech landscape?
As it turned out, many of the real winners 13 years later – Apple, Google, Qualcomm – were unexpected or didn’t even exist yet.
The Barron’s article puts it well: “Markets have a good record of picking the next new thing but investors often have trouble picking the stocks that will profit most from it.”
In other words, even if 3D printing could continue on its current trajectory, determining which companies will ultimately wind up on top is even less certain.
1Vito J. Racanelli, “Dow Hits a Record, Up 1%, In a Volatile Week,” barrons.com, Oct. 9, 2013.
2Alex Barinka, “3D Systems Shares Climb to Record on Takeover Speculation,” Bloomberg.com, Nov. 5, 2013, http://www.bloomberg.com/news/2013-11-05/3d-systems-shares-climb-to-record-on-takeover-speculation.html?cmpid=yhoo, (accessed Nov. 13, 2013).