A Tale of Two Tech Darlings

 | Nov 09, 2012 | 4:30 PM EST
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What's not to love about 3-D printing – especially if you own either Stratasys (SSYS) or 3D Systems (DDD)? The companies are rivals in the business of printing and prototyping of 3-D images for various industrial applications. Both have been solid growth leaders for most of this year.

Let's start with Stratasys. The Minnesota-based company reported its third-quarter earnings results on Nov. 2, and promptly skidded more than 12% in more than double average turnover. The company beat on the top and bottom lines, but -- you guessed it -- guidance disappointed!

Stratasys said it would earn $0.39 per share in the current quarter, with revenue coming in at $52.4 million. The revenue figure is ever-so-slightly below Wall Street's consensus estimate.

Though the stock has been bouncing around its 50-day line all week, it's up 111.51% year-to-date, closing Thursday at $64.32, well below its Aug. 21 high of $73.32, but above key moving averages. At mid-session on Friday, the stock was about 0.3% off Thursday's close, or $0.14 lower, at $45.89.

This company is firmly in growth mode. Revenue has grown at rates of 24% or higher in every quarter for the past two years. Earnings grew at rates of 33% or more during that time.

The company is expected to wrap up this year with per-share income of $1.38, a gain of 34% over 2011. Next year, that's seen rising another 18% to $1.63 per share. But not everything is as rosy as I'd like. Free cash flow per share has been on the wane over the past two years, and return on equity is 13%, a bit on the low side.

Stratasys is a small-cap stock, with a market capitalization of $1.3 billion. It trades around 658,000 shares per day, on average. That's decent liquidity for a stock of that size, but it has a high beta of 1.77. Of course, the volatility is necessary to achieve gains, but traders can become easily spooked and exit the stock on a sudden pullback.

Rival company 3D Systems is actually outperforming Stratasys in terms of revenue and earnings growth, as well as price action.  The stock has advanced 220%, far outpacing even Stratasys' outstanding move. It would be easy to say, "Well, it's ripe for a pullback," if it had not just emerged from a 28% correction. 3D Systems closed at $46.02 on Thursday, and was showing a gain of 0.2%, or $0.10, at midday on Friday.

The company's revenue grew at rates of 35% or higher in every quarter of the past two years. Analysts are expecting earnings per share of $1.21 this year, up 68% from 2011, and $1.56 next year, up another 29%.

Free cash flow was $0.49 per share in the most recent year, down from $0.69 in the prior year. It's preferable, of course, to see that number increasing. Return on equity is 18%, so it comes in above that level of 15%, which is what I generally scan for.

The stock's technical picture at the moment is also better than that of Stratasys. It is holding its gains after clearing its recent consolidation, and is about 3% above the $44.80 high of that pattern, which it reached on Aug. 29 and 30. For those buying into technical strength, the stock looks good. However, be aware that further news-driven market gyrations may send the stock lower again. Over the long haul, this one still appears to have plenty of potential.

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