Key Takeaways
- Proto Labs shares fell 15% Thursday, even though third-quarter revenue rose 14% to a record $154.3 million and the company raised its full-year growth outlook.
- Strong demand couldn’t make up for a gross margin drop, and the stock went into the report priced near the top of its five-year valuation range.
- Gross margin fell to 44.5% from 46.4% in the second quarter, as raw material, equipment and labor costs rose.
- Xometry’s report on Nov. 3 will show whether rising material costs are reaching the rest of custom manufacturing.
Proto Labs (PRLB) just reported a record quarter, and the stock still fell 15% Thursday to close near $78.
The cost of making all those parts went up, and that’s a warning for Xometry (XMTR) too. Its marketplace gross margin slipped to 34.7% in the second quarter, from 35.4% a year earlier.
A beat and a raise
Thursday’s numbers:
- Revenue: a record $154.3 million, up 14% (consensus: $149 million)
- Non-GAAP EPS: $0.63, up from $0.47 a year earlier (consensus: $0.60)
- Full-year revenue growth outlook: 10% to 11%, up from 8% to 10%
- Fourth-quarter guidance: non-GAAP EPS of $0.46 to $0.54
Demand is strong. Factory CNC machining revenue grew 22%, with aerospace, defense, drones, robotics and data centers leading the way.
TIKR tracks 5 analysts on Proto Labs. How many say “Buy”?
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Where the margin went
Gross margin hit 46.4% in the second quarter, its best in two years. Then it turned:
The drop to 44.5% erased nearly all of this year’s gains. CFO Dan Schumacher traced the drop to the factories, “primarily reflecting higher raw material costs, machine upgrades, and targeted near-term investments in labor and contractor support.”
The rest of the business got leaner. Adjusted operating expenses fell to 32.6% of revenue, from 35.9% a year earlier. So non-GAAP operating margin still rose to 11.9%, from 10.0%.
But the fourth-quarter guide doesn’t promise relief. Its $0.50 midpoint is well below the third quarter’s $0.63, and management tied it to holiday seasonality and margin pressure. (It’s still above the $0.48 analysts expected.)
Xometry reports on Nov. 3. And if raw material costs are rising across custom manufacturing, the suppliers in its network are paying them too. Will it take the same hit?
Priced for a perfect quarter
Going into the report, the forward P/E sat near 40x, just off its five-year high of 43x on Oct. 5…
After Thursday’s drop, it’s about 33x, right where it traded a year ago. Since then, quarterly non-GAAP EPS rose from $0.47 to $0.63, so the selloff erased a year of re-rating.
My take: lean toward calling this an opening, since some costs, like machine upgrades, sound temporary.
But 33x still tops the five-year average of 28x, so the fourth-quarter report early next year is the real test.
So what is Proto Labs stock actually worth?
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
