What happened
Shares of quick-turn contract manufacturer Proto Labs (PRLB 0.29%) jumped 38.1% in January, according to data from S&P Global Market Intelligence.
For context, the S&P 500 index fell 1% last month.
Image source: Getty Images.
So what
We can attribute Proto Labs stock's strong performance last month to two main catalysts.
First, investors liked the company's acquisition news. Shares popped 6.6% following Proto Labs' Jan. 19 announcement that it was buying 3D Hubs, a Netherlands-based leading online manufacturing platform that provides customers with on-demand access to a global network of manufacturing partners. Following the Jan. 25 news that the $280 million deal had closed, shares gained nearly 8%.
Proto Labs claims the acquisition means it has the "world's most comprehensive digital manufacturing offer for custom parts." It expects the acquisition to be accretive to its revenue growth rate and slightly dilutive to its adjusted earnings per share in 2021.
In 2020, 3D Hubs generated about $25 million in revenue. For context, Proto Labs raked in revenue of $329.2 million in the first nine months of last year and has guided for revenue of about $101 million in the fourth quarter, making its annual tally likely to be in the ballpark of $430 million.
So 3D Hubs is currently quite small relative to Proto Labs, but it's been growing very fast. It has a compound annual growth rate of more than 200% since 2017.
The second catalyst pushing Proto Labs stock up last month was industry related rather than company specific. Investors drove the stock up 13% on Jan. 7 following good news from 3D Systems (DDD +1.59%), whose shares rocketed 104% on that day.
Data by YCharts.
Along with other news that's not relevant to Proto Labs, 3D Systems announced preliminary results for the fourth quarter of 2020 that were notably better than Wall Street had been expecting.
Given that Proto Labs and 3D Systems compete in the on-demand 3D printing services space, investors believe that 3D Systems turning in stronger-than-expected results in the fourth quarter makes it more likely that Proto Labs will do the same. Both companies serve a lot of industrial companies, along with healthcare companies.
Proto Labs stock isn't just a one-month wonder, as shares have more than doubled over the last year.
Data by YCharts.
Now what
Investors shouldn't have long to wait for material news. Proto Labs is slated to report its fourth-quarter and full-year 2020 results on Friday, Feb. 12, before the market open.
For Q4, the company has guided for revenue in the range of $96 million to $106 million, compared to $107.5 million in the third quarter.
On last quarter's earnings call, CFO John Way explained the reasons for the expected sequential decline: "The third quarter included $3 million of COVID-related orders, and we expect less COVID-related revenue in the fourth quarter. Additionally, our fourth-quarter revenue tends to be lower than the third quarter, due to our normal seasonality pattern."
