Proto Labs impresses with solid figures despite challenges

Proto Labs' stock experienced a notable increase of 34.1% on Friday after the company surpassed analysts' expectations for the third quarter. While the market anticipated earnings of $0.32 per share on revenues of $121.4 million, Proto Labs actually reported $125.6 million in revenue and earnings of $0.47 per share—nearly 50% higher than projected. Despite these positive surprises, the company reported earnings of only $0.29 per share according to Generally Accepted Accounting Principles (GAAP), a decline of 6.5% compared to the previous year. Revenues also decreased by nearly 4%. CEO Rob Bodor described the results as "solid," despite ongoing challenges in the manufacturing sector that impacted revenue this quarter. CFO Dan Schumacher highlighted that the 3D printing services provider achieved the best free cash flow since 2020, generating $52.2 million in cash so far this year. For the fourth quarter, management predicts revenues between $115 million and $123 million and GAAP earnings between $0.10 and $0.18 per share. This suggests total revenues of approximately $498 million and earnings of about $0.81 per share for 2024. Regarding the current price-to-earnings ratio, Proto Labs shares appear expensive with a P/E ratio of 45 for the current year, particularly considering stagnant earnings growth. On the positive side, assuming the company continues to generate free cash flow at the current pace, it could achieve $70 million in cash this year. With a market capitalization of $690 million, this results in a price-to-free-cash-flow ratio of less than 10, making the stock appear more attractive from this perspective.