What investors need to know about 3-D printing

MakerBot's popular Replicator 2

3-D printers can fabricate objects that traditional manufacturing tools could never cook up. The question now is whether they can generate profits that justify the hype swirling around the industry.

3-D printing has become one of the most talked-about technologies. Stock prices of the four publicly traded makers have soared, and shipments of desktop printers used by hobbyists and small businesses have increased dramatically. With the final companies reporting earnings over the past week, investors got a better idea of where this rapidly growing industry is heading.

The printers build three-dimensional objects by laying down superthin layers of plastics and other materials. They have been used to make everything from jet engine parts to models of 007's Aston Martin for the James Bond movie "Skyfall."

Here's a look at what we learned about the recent past and near future of 3-D printing.

Beyond the merger land

The two biggest players in the market, 3D Systems and Stratasys, make printers small enough to sit on desktops and large enough to make engine parts.

Investors want to see that these two companies, after a number of mergers and acquisitions, can grow by selling more machines rather than by buying other businesses.

Stratasys management said third-quarter sales of high-priced production printers grew 27 percent as more customers adopt 3-D printing for finished goods. Manufacturers have been using 3-D printing primarily to make prototypes and mock-ups, though that is changing. Stratasys' shares are up 52 percent this year, to $126.49.

"There's more of a migration to using 3-D printing to make end-use parts on the high-end systems," said Andrea James, vice president at Dougherty & Co., on CNBC's "Street Signs." "There's growing use in the aerospace and automotive and other industrial markets."

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Printer producers also can make more money by expanding the number of materials available to customers.

3D Systems has historically focused on plastics but recently announced that it plans to triple capacity of its Phenix Systems machines, which print metals. Metal printing could help capture more business in health-care products and aerospace—key growth areas currently addressed by just a handful of printermakers.

The company increased its 2013 sales expectations but tempered the profit outlook because it plans to invest more of its revenue to capture additional market share. The stock is up 111 percent this year, to $80 a share.

3D Systems has released 12 products so far this year and plans to release several more at the EuroMold Conference and Consumer Electronics Show in December. By selling more printers, it is laying the groundwork to sell more printing materials and services, which have higher profit margins than printers.

"Simply put, for the next few periods we are going for accelerated market share extension ahead of earnings per share extension," said 3D Systems CEO Abe Reichental during the earnings conference call.

3-D printers for the people

Both 3D Systems and Stratasys said their profit margins are pressured because of more sales of lower-priced printers.

Wohlers Associates, a 3-D printing research firm, projects that 70,000 of these small printers will be shipped this year, up from just 355 in 2008. In a recent research paper, Credit Suisse lead analyst Julian Mitchell said that the market could double, to 140,000 units, by 2016 as consumer printers become more affordable and available.

Now sold through retailers such as Amazon, Wal-Mart Stores and Staples, Cube printers and accessories contributed $13.5 million to 3D Systems' total third-quarter revenues of $135.7 million, a 50 percent rise from the same period in 2012. The company said it was the first quarter that consumer printer sales had reached "meaningful levels."

After the release of the earnings report, Canaccord analyst Bobby Burleson wrote that "consumer surprised to the upside and looks to be a bigger driver of revenue than expected."

Stratasys reported $11.6 million in consumer printer sales since August, when it acquired Brooklyn, N.Y.-based MakerBot, which produces the popular Replicator 2.

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In its earnings conference call, Stratasys highlighted the the release of MakerBot's Digitizer Desktop 3D Scanner. It allows users to scan an object, create a design from the scan and use the design to reprint the object in a MakerBot. The technology expands the uses for 3-D printers by letting users modify objects.

The growing bank of free designs available for download could also attract new customers. MakerBot's is the largest database, with more than 100,000 designs and about 7,000 being added each month, according to Stratasys.

MakerBot just announced a partnership with the crowdfunding website that aims to put 3-D printers in classrooms.

"The education market is a target market for the lower-cost 3-D printers, and selling into the education market can help to drive future sales when today's students find jobs at corporations and are used to working with 3-D printers," said James at Dougherty & Co.

Moving into 2014, investors will be watching Hewlett-Packard's entry into consumer 3-D printing. Some said HP's presence in the segment could drive down retail prices and further squeeze margins.

"There's a delicate balance you have to think about when you try to expand installed base, but at the same time think about what the actual profitability is for these units going out the door," Morningstar analyst Daniel Holland told "Street Signs."

3-D printing stocks on fire

Bigger, better, more expensive

On the opposite end of the spectrum, Pennsylvania-based ExOne and Germany's voxeljet focus on selling large printers and printing on-demand parts. These companies sell only several machines each quarter—a strategy that's looking successful.

ExOne sold eight machines for a total of $7.8 million in the third quarter, which drove a 36 percent revenue increase. Though it hasn't turned a profit, the company narrowed its loss to a mere $224,000 from $5.9 million a year earlier. Shares are up 128 percent in 2013, to $60.90.

In its first earnings report, voxeljet reported that revenue was almost evenly split between on-demand printing services and system sales. The company, which made about $2.5 million from moving four printers, had a revenue gain of 77 percent year over year.

Voxeljet has released the market's largest printers in the last two years. While they cost more than $2 million, they are economical. The cost per cubic feet of printing an object on its priciest machine is lower than similar systems with a lower price tag from ExOne, according to Piper Jaffray research.

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Troy Jensen of PiperJaffray is bullish on voxeljet's growth prospects, but says its share price already factors in a couple years of growth and market share gains. He says PiperJaffray would be a more strategic buyer if the stock price pulled back meaningfully.

Since debuting on the stock market in October, voxeljet's share price has skyrocketed nearly 350 percent.

The story is similar for ExOne. In a research note, Credit Suisse rated the company behind Stratasys and 3D Systems, in part because the firm prefers system manufacturers with a diversified product range.

"Although we applaud the current high sales growth rate, we think that, over time, its sales growth and profit margins will struggle to match the lofty expectations embedded in its current share price," wrote Credit Suisse's Mitchell.

Morningstar's Holland issued a similar warning for the entire industry on Street Signs.

"I think right now when you look at the stocks there's a lot of optimism and hope really baked into the share price. It's very easy to get excited about an industry growing at such a rapid clip," said Holland.

—By CNBC's Tom DiChristopher. Follow him on Twitter @tdichristopher.