Why 3D Printer Stocks Are Ripe For M&A Deals

 Disclosure: I own shares of  3D Systems

Let me be clear from the beginning. I have no information whether any M&A activity is underway in the 3D printer industry. But I believe that the industry may be ripe for M&A deals.

For two reasons.

First, after a prolonged correction, valuations have become reasonable. Stratasys and 3D Systems, for instance, trade at a forward PE of close to 22, less than half of those two years ago. Most notably, the two companies have a market cap—to-revenue ratio less than five, and continue to grow at brisk rates.

Financials of the Four Major Players as of 3/27/2015

Source; finance.yahoo.com

Second, after a period of experimentation, 3D printer companies may be getting their business model right—switching into a service rather than a direct sales model.

As stated in a recent company announcement: “Stratasys believes this move better positions the company to meet growing customer needs for additive manufacturing (or 3D printing) services as a production method. Now one of the largest advanced manufacturing service organizations, Stratasys Direct Manufacturing creates custom solutions from a comprehensive portfolio of technologies and materials to produce parts for applications ranging from models and prototypes to end-use components and assemblies.”

The shift into a service model will help 3D printer companies overcome a number of customer adoption problems – particularly, a rapidly evolving technology, which makes prospective buyers hesitant to commit to a certain model. “The problem, then, derives from the fact that it’s difficult to sell machines to manufacture things when the technology is still rapidly evolving,” writes  Barron’s Tiernan Ray. “The big three, I think, realize this, and they are moving more and more to a services business, where instead of selling printers, they take orders and make the objects themselves.”

That’s why Ray thinks that 3D Printer companies may attract interest beyond the traditional printer company— unlikely suitors like Amazon.com , Google and Microsoft , striving to integrate 3D into their computing service.

That’s in addition to the likely suitors, HP, Lenovo, and the rest.