Industry giant Lexmark International (NYSE: LXK) reported earnings fell 61 percent in the second quarter of 2012, prompting a 13 percent employee reduction. Hewlett-Packard (NYSE: HPQ) considered selling its flagging printer business in the past, but decided to merge printing with personal computers.

Fact is, these tech companies are in the wrong segment for printing devices. The best growth in printing is in 3D technology and the winner is 3D Systems (NYSE: DDD).

3D Systems is a leading provider of 3D content-to-print solutions including 3D printers, print materials and on-demand custom parts services for professionals and consumers alike. Also known as additive manufacturing, 3D printing fabricates parts by “printing” them whole from digital data, one wafer-thin layer at a time. To date, the technology has mainly been used as a cost-effective way to create models and design prototypes. Now, it is being used for more consumer and industrial products.

3D printers can print on almost anything, including covers for smartphones (including Apple’s new iPhone 5.0), tablets, finished jewelry and toys, custom hearing aids, individualized prosthetics and orthodontics, as well as functional parts for airplanes, unmanned aerial vehicles and automobiles. Over the past decade, entire industries have converted their manufacturing processes from traditional methods to 3D printing and digital manufacturing.

Instead of investing in expensive tooling for mass production, incurring long lead-times and costly freight charges to ship products around the world, 3D printing allows customers to mass customize and locally print what they need, when they need it in a more cost-effective way, while significantly reducing undesirable environmental effects of traditional manufacturing.

3D Systems: Printing Profits

3D Systems’ portfolio of 3D printers is based on several unique print engines that employ proprietary, additive layer printing processes designed to meet its customers’ most demanding design, prototyping, testing, tooling and production requirements.

3D Systems’ market cap is $2.12 billion; its stock price has soared by 126 percent in the last 52 weeks, but there’s plenty of upside left. The company is listed on Fortune’s Fastest-Growing Companies for 2012.

3D Systems reported second-quarter 2012 revenue of $83.6 million, an increase of 52 percent year over year, propelled by 20 percent organic growth. The company reported growth from all its revenue categories, led by a 112 percent increase in printer units sold. Backlog increased 28 percent sequentially to $12.3 million at the end of the quarter, on continued strong demand for its printers, materials and on-demand parts services.

3D Systems reported earnings of $13.9 million for the second quarter, up 44 percent compared to the 2011 quarter, resulting in earnings per share (EPS) of $0.27.

The company generated $21.4 million of cash from operations in the first six months of 2012, and ended the second quarter of 2012 with $158.5 million of available cash, after incurring a $11.8 million increase in its operating expenses primarily from acquisitions and higher sales and marketing costs. The increase included $1.9 million of higher research and development expenditures in support of its expanded consumer and health care solutions portfolio.

3D Systems is projected to grow EPS by 25 percent in 2013 and 21 percent in 2014. 3D Systems has a price-to-earnings growth (PEG) ration of 2.04, which is common for high-growth stocks.  

Buy 3D Systems, with a 12-month price target of 45.

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Greg Pugh, an income-investing expert, publishes a newsletter called Investing for Monthly Income.