Have you ever read about or seen a new technology in action and thought to yourself “I’ve arrived in the future”?
With the explosive rate at which technology has been moving in this century alone, I imagine the answer is a resounding “yes!”
A few years ago, much of the hype about the future today was focused on 3D printers. Personal 3D printers were suddenly on the market for $1,000, and then $500, and then $300, and buyers of these printers imagined themselves not only designing and developing products of their own, but also printing and replacing broken parts, all in the comfort of their own homes.
The market, of course, saw the excitement and ran with it, and the stock prices of 3D printer manufacturers exploded on the hopes that 3D printers would soon be as commonplace in homes as TVs or a toaster.
But then the hype began to wane as consumers realized that it was a lot harder to design the products they wanted to create than they had originally thought. To produce something with a 3D printer, you first have to learn computer-aided design, and while that might be relatively easy for simple shapes if you’re already familiar with a program like Adobe Illustrator or Photoshop, it’s not as simple when it comes to designing products and parts with specific dimensions.
The industry recognized this and began building libraries of plans, but the bulk of these plans focused on toys and home decorations. And while there were no shortage of designs to print, useful and functional parts and products were elusive or only printable by experienced designers.
Consumers quickly realized the limitations of 3D printers, and sales growth and operating margins began to fail to live up to expectations. With that, the momentum crowd that had chased 3D printer stocks ever higher abandoned ship sending stock prices from around $100, down to the single digits.
The story with 3D printers is a classic case of the market’s exuberance getting ahead of itself.
The reality is that the 3D printing industry is new, and as with any new industry, it has encountered issues that have slowed down adoption rates. It isn’t unlike the setbacks that slowed down the adoptions of personal computers or mobile phones.
But today, while the 3D printing industry isn’t at the forefront like it was, it’s still growing like crazy though not exactly in the way the momentum crowd that pushed stocks higher were looking for.
3D printers aren’t yet in every home and don’t look likely to be in the foreseeable future, so adoption rates and sales statistics aren’t where the market wants them to be. But one indicator hints to the future for 3D printing: patents.
In 2005, 80 patents were issued for additive manufacturing, the technical term for 3D printing. By 2013, that number was up to 600. That’s an 800% gain in the number of innovations the 3D printing industry was churning out in just a few years.
These innovations have lowered prices and have turned 3D printing from a novelty that produced one-off trinkets, to a practical tool in the advancement of commercial manufacturing.
Today, 3D printing is used for manufacturing component parts for smartphones, 98% of hearing aides produced worldwide are manufactured using 3D printing, and 3D printing is widely used for prototyping and product development. Two-thirds of manufacturers already use 3D printing in some capacity, and another 25% have plans to adopt the technology.
The advances in the industry are astounding. Adidas debuted 3D printed custom sneakers this week. GE now uses 3D printing to create the fuel nozzle for its Leap engine, a part that actually used to be over a dozen parts, but is now just one. Flat organs like skin and blood vessels, and hollow ones like bladders, are being successfully printed and used in clinical settings.
With advances like these, it’s not hard to imagine the industry growing from a $7 billion industry in 2016 to a $21 billion industry by 2020.
But the market hasn’t caught on yet, and stock prices for 3D printer manufacturers aren’t much above the lows they fell to at the beginning of 2016.
However, looking at the chart for 3D Systems (NYSE: DDD) tells me things are about to start looking up.
3D Systems manufactures and sells 3D printers, print materials, on-demand parts services, and digital design tools, and was the pioneer in the 3D printing industry.
This past week, DDD announced a 30% price drop of its production-ready ProX SLS 500 3D printing system. This was an aggressive move to increase market share and drive adoption of 3D printing as companies shift their production to additive manufacturing. The new pricing for this system is now market leading in terms of total cost operations for durable, end-use parts compared to competing systems which sets the company up nicely to be competitive as more and more companies shift to 3D printing production.
Let’s look at DDD’s chart.
Source: Trading View.
Looking at the daily chart, we can see the formation of a contracting triangle. A triangle is a chart pattern in which two trend lines cross each other, and a contracting triangle is typically a continuation pattern, meaning that once the price breaks out of the triangle, it should continue higher.
To get a minimum price target once the price breaks out of the triangle, take the base of the triangle (the widest part) and measure it, then project it up from the breakout price.
Now, if we look at the weekly chart, it appears that this contracting triangle is forming at the long-term bottom for DDD.
Source: Trading View.
I’ve drawn 38.2%, 50%, and 61.8% Fibonacci retracement levels from the fall of DDD’s price from 2014 to early 2016.
Based on this weekly chart, our 38.2% retracement level of this crash is around $41. If the bottom is indeed in place, which I believe it is, I expect that DDD’s price will bounce to at least that 38.2% level. That’s a potential return of 168% from today’s price (Friday) of $15.26.
Considering how much the 3D printing industry has grown over the last decade and it’s incredible potential for future growth, it’s a sector worth being invested in and 3D Systems is presenting investors with an excellent buying opportunity.
As with any investment, do your due diligence before investing. If you like the fundamentals, 3D Systems gives you exposure to an industry that is likely to play a very big role in our future.