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On March 24, 2014, we issued an updated research report on Stratasys Ltd. (SSYS - Analyst Report) post its fourth-quarter results. Despite delivering better-than-expected fourth-quarter results, the 3D printing solutions provider expects operating margins to be impacted by higher-than-expected operating expenses.

Stratasys has a high cost structure and remains in the investment mode. The company expects its operating expenses to increase significantly during fiscal 2014 due to incremental investments in sales & marketing and research & development.

Moreover, Stratasys expects second-half fiscal 2014 non-GAAP net income to be governed by the rate of adoption of its new products. Considering the evolving nature of the 3D printing market and high cost of operations, we believe much of the company’s long-term profitability will depend on efficient cost management.

Nonetheless, Stratasys’ sizable installed base of 3D printing systems enables it to sell related consumables. The recurring nature of revenues from consumables lends stability to the company’s revenue model. This bodes well for Stratasys as with the rapid adoption of 3D printing technologies would entail higher contribution from the consumables segment.

Moreover, per, the global 3D printing market is expected to increase at an aggregate rate of 20.0% every year and reach the $5 billion mark in 2017 buoyed by higher demand in the medical and dental market.

Furthermore, pent up demand for 3D printing products is expected from consumer products, automotive and aerospace segments. Additionally, TechNavio forecasted the market for global 3D Printer to grow at a CAGR of 16.3% (2012-2016).

To conclude, Stratasys’ high-cost business model and competition from big and small players like 3D Systems Corp. (DDD - Analyst Report) and Voxeljet (VJET - Snapshot Report) remain the concerns. However, the acquisition of MakerBot and Objet are expected to aid 3D systems business growth.

Currently, Stratasys has a Zacks Rank #3 (Hold). Investors may consider a better-ranked stock like Micron Technology (MU - Analyst Report) which sports a Zacks Rank #1 (Strong Buy).

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