With 3D printers constantly improving in quality and affordability, I have been on the lookout for a UK stock that could rally if the sector takes off in a big way.
The futuristic dream of a 3D printer in every household is already within reach, with the price of some consumer-oriented models coming in at less than £200.
Although that might sound like money only a tech enthusiast would splurge, consider the long-term savings a normal household could make by downloading free models of plastic items they would otherwise buy – like coasters, combs, cups, dice, food moulds, ice cube trays, key rings, phone cases and so much more.
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Meanwhile, 3D printing – otherwise known as ‘additive manufacturing’ – already has a strong foothold in industry, especially when it comes to highly complex parts produced in small batches, like functional prototypes or complex parts for military equipment.
Aerospace and defence firms in particular do not want to invest in expensive tooling equipment if they only need to make an input at a low volume, so 3D printing has been widely adopted to overcome this problem – for example, additive manufacturing has been used by Airbus to make cabin wall panels and by L3Harris Technologies to make antennae.
Xaar: from 2D to 3D printing
Much like tobacco companies have invested in e-cigarettes and oil companies in green energy, digital inkjet company Xaar (LSE:XAR), established in 1990, has diversified into 3D printing to keep up with the changing times.
An early mover in the space, the company was awarded ‘Innovation of the Year’ at the 3D Printing Industry Awards in 2018 for its efforts at making the technology mainstream in manufacturing.
Disappointingly, it disposed of its Xaar 3D division at the end of 2021, allowing Stratasys – a US-listed company – to buy out all of the shares in that operation. Xaar 3D’s flagship offering is Selective Absorption Fusion™ (SAF) technology, an industrial-grade technology with the objective of improving accuracy and consistency in parts manufacturing processes.
On the bright side, Xaar still retains royalty rights, equal to 3% of revenues generated by Xaar 3D for 15 years. It has also strengthened its balance sheet by receiving the cash injection from Stratasys while cutting loose the loss-making division.
Whatever the challenge requires…
At the same time, Xaar remains exposed to the 3D printing sector’s strong growth (forecast to hit a compound annual rate of 21% from 2022 to 2028) by selling ‘printheads’. The printhead is the mobile part that transfers the image onto the media – capable of dropping, melting, spraying, writing, etc, onto its target.
With a huge portfolio of printheads, fitted with melting chambers, nozzles and a host of other gadgets capable of dutifully carrying out the printer’s directions using viscous liquids, plastics or whatever else the challenge requires, Xaar has leveraged its technical prowess in the inkjet sector to make itself an indispensable partner to the up-and-coming 3D printing sector.
However, with an expensive forward price-to-earnings ratio of 230, the pressure is on for Xaar to live up to analysts’ lofty expectations of an annual growth rate of 31% per year out to 2027. Any hiccups along the way, and this UK stock’s price could take a nasty tumble. So for now, I’m staying on the sidelines…
