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Why Proto Labs Stock Just Popped

By Rich Smith - Jan 20, 2021 at 4:19PM

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A small acquisition could do big things for the company's growth rate.

What happened

3D printing prototyper Proto Labs (PRLB -5.73%) announced Tuesday night that it has agreed to acquire leading online manufacturing platform 3D Hubs. This will create what management described as "the world's most comprehensive digital manufacturing offer for custom parts."

Based on that news, investment bank Craig-Hallum boosted its price target on Proto Labs to $167 per share -- and the market boosted the company's actual stock price on Wednesday.

Proto Labs shares closed the trading day up by 6.6%.

Stock up glowing green arrow climbs on a stock screen

Image source: Getty Images.

So what

In its press release, Proto Labs advised that it will pay $130 million in cash and $150 million in stock for 3D Hubs, plus an additional earnout of up to $50 million over the two years after the acquisition closes (to be paid half in cash and half in stock).

Management says the deal will give Proto Labs "unprecedented manufacturing flexibility" and permit it to "fulfill nearly every custom manufacturing need across the product life cycle."

Now what

Proto Labs aims to complete its acquisition before the end of January.

3D Hubs brings with it a $25 million annual revenue stream that has been growing at a staggering compound annual rate of 200%. Although Proto Labs projects that the acquisition will be "slightly dilutive to non-GAAP earnings per share in 2021," it says it will accelerate the company's revenue growth rate.

That may be understating things a bit. Although Proto Labs is no slouch in the revenue department itself, with $441 million in trailing sales, its revenue growth rate over the past five years has averaged only a respectable 12%. Adding a subsidiary that's growing nearly 17 times as fast could turbocharge Proto Labs' sales growth -- and its stock price as well.

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