Proto Labs Is At The Forefront Of The Manufacturing Revolution (NYSE:PRLB)

Proto Labs (PRLB) is a leading low-volume manufacturing and rapid prototyping company. Proto Labs employs some of the most innovative manufacturing techniques, such as 3-D printing and CNC machining. While Proto Labs started off as an injection molding company, the company has successfully diversified towards even more promising markets.

This digital manufacturing giant is at the forefront of promising manufacturing technologies. Unfortunately, the recent coronavirus pandemic will likely impact the company’s operations in the near term, especially considering how sensitive prototyping is to economic downturns. Despite near-term macroeconomic challenges, Proto Labs is well-positioned in an evolving manufacturing industry.

Proto Labs is on the cutting edge of emerging manufacturing technologies.

Source: Proto Labs

Promising Manufacturing Technologies

Proto Labs is heavily involved in some of the most innovative manufacturing techniques in the industry. The company is leading in high-growth manufacturing industries like CNC machining and 3-D printing. 3-D printing, in particular, appears to be an increasingly promising manufacturing technology. While 3-D printing has not met the expectations of years past, the industry is still expected to grow at an incredibly fast rate moving forward.

3-D printing was the only segment that grew noticeably for Proto Labs in Q4 with revenue at $15.7 million, representing 13% Y/Y growth. Although injection molding still accounts for a large percentage of the company’s revenues, the segment actually experienced a revenue decline of 5% Y/Y. CNC machining was the only other segment that grew Y/Y, albeit slightly at 1% growth.

Proto Labs’ 3-D printing business stood out in a stagnant quarter.

Source: Proto Labs

The current pandemic will likely only make it harder for Proto Labs to experience growth in the near term. However, with the company’s investments in high-growth manufacturing industries like 3-D printing, there will be far more room to grow in the long term. Proto Labs’ dominance in rapid prototyping and low-volume manufacturing should only grow as the company embraces more innovative technologies.

Evolving Services

Proto Labs is looking to further expand its services with its Proto Labs 2.0 project. Proto Labs 2.0 is essentially a project to relaunch the company’s e-commerce and back-end software systems. Proto Labs, for instance, is making its e-commerce site far more customer-friendly, especially for customers with more complex orders.

Proto Labs’ efforts to evolve its systems will position the company well in an increasingly sophisticated manufacturing landscape. The company will need to continue evolving in this fast-paced industry in order to have an edge over competitors like 3D Systems (DDD) and Stratasys (SSYS). Even relatively large players like HP (NYSE:HPQ) are starting to get involved in emerging manufacturing markets like 3-D printing.

Impact of Coronavirus

The coronavirus pandemic is clearly having a negative impact on Proto Labs. The company has lost ~30% of its value over the past few months, with its stock price dropping from $113 in February to $75. This drop makes sense as prototyping and manufacturing in general are sensitive to economic downturns. Proto Labs could see further downward movement if the coronavirus outbreak lasts longer than expected.

Proto Labs’ stock price experienced a steep decline as a result of the coronavirus.

ChartData by YCharts

Fortunately for Proto Labs, the company’s orders are e-commerce based. This means that Proto Labs does not require the kind of human-to-human contact necessary in traditional manufacturing businesses. The digital manufacturing leader is relatively shielded from the coronavirus compared to the rest of the industry. In fact, Proto Labs has actually been deemed an essential business given its integral role in providing services to medical device customers.

Conclusion

Proto Labs is leading the new manufacturing revolution with heavy investments into technologies like 3-D printing and CNC machining. The company’s recent stock decline offers investors an opportunity to buy Proto Labs at a discounted rate. Proto Labs’ more digitally based manufacturing business will allow the company to weather the coronavirus pandemic far more easily than traditional manufacturers.

Proto Labs still has more room to grow at its current market capitalization of $2.1 billion and forward P/E ratio of 46. Although Proto Labs experienced a weak Q4, with a revenue of $111.89 million (-.8% Y/Y) and a net income of $15.9 million (-21.3% Y/Y), the company is still a leader in several high-growth industries. Proto Labs is at the forefront of a rapidly evolving manufacturing industry.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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