3D’s Stock Surges as Promise Turns to Profits : Technology: Laser model-maker gains acceptance but more competition looms.

A year ago, 3D Systems’ Chairman Raymond S. Freed noted that his company’s stock was selling at about the same price, $5-$6 a share, as it had shortly after the Valencia-based concern went public in August, 1987.

That was fine with Freed. The company is a fledgling developer of a new machine that combines a computer, laser and chemicals to rapidly make models of consumer and industrial products. It’s a new technology that is subject to lots of hype. But Freed wanted the stock to rise in response to 3D’s performance, and a year ago the company was only beginning to sell its machines.

Lately, however, Freed has gotten his wish. In the first nine months of 1989, 3D’s sales jumped to $10.8 million from $2.7 million a year earlier, and in the third quarter alone, 3D reported its first quarterly profit in its 3 1/2-year history: $342,633 on sales of $5.53 million.

And those improving numbers, together with other developments, have sent 3D’s stock soaring.

The stock closed Monday at $14.75 a share in over-the-counter trading after reaching $16.50-$17 a share last week. When the company went public, via the Vancouver Stock Exchange, the stock sold for 2.35 Canadian dollars per share, or about $2 U.S. at current exchange rates.

Ramkrishna Kasargod, who follows the company for the regional brokerage firm Morgan Keegan & Co. in Memphis, Tenn., estimates 3D will earn about $6.2 million next year. So 3D’s stock, on an earnings-per-share basis, is now selling for roughly 40 times those expected profits--a lofty multiple that means investors are betting heavily that 3D and its technology will become big hits.

As with any new technology, though, they could be wrong. “Any new idea is risky because you don’t know whether it’s going to fly,” Kasargod said.

The firm seemed like a risky bet from the outset, when it went public on the Vancouver exchange, a market long known as a favorite of oil drillers, gold miners and occasional unsavory promoters who used the exchange to peddle speculative and risky penny stocks. Freed initially sought financing from U.S. venture capitalists. But when they could not come to terms, he went north of the border to Canada.

But 3D’s technology, called stereolithography, seems to be catching on as a legitimate and useful technology. The company to date has sold 100 of its refrigerator-sized machines--which cost between $185,000 and $250,000 each--to such customers as General Motors, Apple Computer, Texas Instruments and Chrysler.

The machines are aimed at saving manufacturers hundreds of hours in the time needed to bring a new design to the production line. Manufacturers typically spend days or weeks making small models of a new design by hand out of wood, clay or foam before they send the item into production. But 3D says its machines can make the models in hours. In essence, the 3D machine’s laser--responding to a computer-aided design--creates the model by tracing the design onto a vat of liquid plastic.

Freed said last week that he had “no real reason” that would explain the jump in 3D’s stock, 27% of which is owned by Freed and other insiders and 37% of which is owned by the Swiss chemicals giant Ciba-Geigy Ltd. But besides the earnings, he noted that the U.S. Patent Office recently upheld 3D’s primary patent on its technology after Du Pont Co. challenged that patent.

Freed said Du Pont has disclosed that it too is working on a similar machine. Freed said he has even “made overtures to them about cooperating on the chemicals” needed by both companies’ products, but declined to elaborate.

Du Pont is not the only company that poses a threat to 3D. Analyst Kasargod said at least four small, private firms around the country also are developing technologies for rapid model-making, some of which also employ lasers. One firm, DTM Corp. in Austin, Tex., is said to be close to entering the market against 3D.

Kasargod also cautioned that 3D’s stock remains risky because an economic slowdown could prompt manufacturers to sharply reduce their spending on new equipment, such as 3D’s machines.

Freed remains confident, though. The firm is working to develop new versions of its machines that can make bigger models in one step, and 80 of 3D’s 180 workers are involved in research and development, he said.

In the meantime, Freed said the rise in 3D’s stock shows “that evidently, people are beginning to have faith” that the technology “does what it’s purported to do.”