This is a Guest Post by AK of Fallible
AK has been an analyst at long/short equity investment firms, global macro funds, and corporate economics departments. He co-founded Macro Ops and is the host of Fallible.
Stratasys (SSYS) is a massively underpriced stock with huge long-term compounding potential. The centerpiece of this long thesis goes back to one of our foundation principles that:
Humans are inherently bad at understanding the scale of exponential growth and the power of compounding…
SSYS is in the additive manufacturing (AM) or 3D printing business. They’re industry leaders in polyjet and fuse deposition modeling geared towards industrial manufacturers.
The additive manufacturing industry serves as a perfect case study of the product adoption S-curve and Gartner’s hype cycle. As I’ll show, both are indicating that the AM industry and SSYS specifically are about to enter a sustained period of exponential growth that the market is not at all accounting for.
Let’s start with a quick explanation of the S-curve.
The product S-curve life cycle is the typical growth and maturation path of new technologies.
The chart below shows the four stages of this cycle and what the growth curve looks like for each one.
The Harvard Business Review defines the four stages as the following:
Stage 1. Market Development
This is when a new product is first brought to market, before there is proven demand for it, and often before it has been fully proved out technically. Sales are low and creep along slowly.
Stage 2. Market Growth
Demand begins to accelerate and the size of the total market expands rapidly. It might also be called the “Takeoff Stage.”
Stage 3. Market Maturity
Demand levels off and grows, for the most part, only at the replacement and new family-formation rate.
Stage 4. Market Decline
The product begins to lose consumer appeal and sales drift downward, such as when buggy whips lost out with the advent of automobiles and when silk lost out to nylon.