It's Difficult to Make a Fundamental Case Against 3-D Printing, BB&T Says (DDD) (SSYS) (XONE)

3-D printing stocks like 3D Systems Corp. (NYSE: DDD) and Stratasys Ltd. (NASDAQ: SSYS) are seeing additional selling pressure Monday which may be connected to a cautious WSJ story on the sector late Friday. The article discuses lofty valuation among the stocks and quotes ExOne (NASDAQ: XONE) President, David Burns, as saying the hardest thing to manage is the hype.

3D Systems is down 5.4%, Stratasys is down 4% and ExOne is down 3.5% in early trade.

BB&T Capital Markets analyst Holden Lewis offered his own thoughts on the sector today following last week's "Inside 3D Printing Conference and Expo 2014." Lewis acknowledges the "slipping EPS forecasts and nasty news cycle" hitting the stocks but says investors should not only focus on valuations but fundamentals, which he says remain strong. "Investors can decide what they are willing to pay, but we believe it is difficult - much more so than the bears would have you believe - to make a fundamental case against the sector," he said.

Lewis sees no sign of slippage in demand and says the myriad of concerns, including Chinese competition, are not emerging among production/professional customers, which were 85% of sales for 3D Systems and Stratasys in 2013. They also see no margin red flags.

Simply put, the analyst said they were unable to unearth cracks in the 3D story. "By nearly every account, growth is strong and interest is growing/broadening," he said. "We found no obvious looming margin issues. Yes, the major public OEMs are spending a lot to support growth, but this looks discretionary; not defensive. Fundamentally, this 2013 and 2014 models are unchanged; uniquely rapid, profitable and cash flow-positive growth."

Lewis also notes recent acquisitions in the sector from Stratasys and 3D Systems speak volumes. He also notes Medical Modeling represents 3D Systems' new M&A frontier.

The analyst said valuations between the three names have largely converged, so investors should pick their story. The firm's favorite is ExOne, but the firm rates the other two with Buy ratings as well.

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