Rapid manufacturer Proto Labs (PRLB -0.47%) reports its second-quarter 2014 earnings on Thursday before the market opens. For the quarter, analysts expect Proto Labs will grow revenues by 29.4% to $51.4 million and take home $0.42 a share in earnings. However, it's important for long-term investors to read beyond the headlines to ensure the long-term investment thesis remains intact. Here's what investors should watch for when Proto Labs reports earnings.
Revenue growth
Between 2007 and 2013, Proto Labs has grown its full-year revenue by nearly 29% per year, compounded. Despite this impressive growth trajectory, Proto Labs is still a relatively small company with a massive untapped market opportunity. In other words, Proto Labs investors should reasonably expect that strong revenue growth will continue in the quarters and years ahead -- which would also help establish that the company is delivering on its potential.
Source: SEC filings.
Product developers served
Another way Proto Labs investors can verify if the company's rapid manufacturing services are growing in demand is to track the number of unique product developers it serves during a given quarter. Tracked over a period of time, it can help determine whether or not Proto Labs' rapid manufacturing services are gaining market share and are becoming more influential in the product development world.
Source: SEC filings.
Revenue per product developer
Going a step further, investors should also track the average revenue Proto Labs generates per unique product developer. Long-term investors want to see this metric increasing over time, indicating that customer loyalty could be on the rise, which may come in handy if Proto Labs needed to fend off competitive pressures.
Source: SEC filings.
Margins, margins, margins
Monitoring profit margins will help investors ascertain if Proto Labs is maintaining its pricing power and whether or not the company is keeping its spending in check. Over the long term, investors would like to see profit margins trending higher, suggesting that Proto Labs' services remain differentiated in the marketplace and aren't becoming threatened by the competition.
Source: SEC filings.
International growth
Last quarter, 28% of Proto Labs' revenue came from international sources, meaning there's plenty of untapped potential for the company overseas. Although there is more uncertainty when it comes to the world economy, investors should look expect that Proto Labs will continue to build out its international presence in the years ahead. Listening to the conference to call may provide insight about future international expansion plans.
Source: SEC filings.
Fineline update
In April, Proto Labs made an entrance into the 3-D printing as a service space when it acquired Fineline Prototyping. The move underscores Proto Labs' desire to handle more of the product development process for customers, and now the company can take a customer from a 3-D printed conceptual model all the way to a mid-volume manufacturing run in excess of 10,000 parts. Investors should listen to the conference call to learn more about how Fineline will be integrated into Proto Lab's ecosystem.
All eyes on Thursday
When Proto Labs reports earnings on Thursday, investors should use this guide to help them determine whether or not the long-term investment thesis remains intact. Focusing on how the business is performing -- rather than the stock price -- will help establish whether or not action is warranted for long-term investors.
