What happened
Shares of quick-turn contract manufacturer Proto Labs (PRLB 2.86%) plummeted 66.5% in 2021, according to data from S&P Global Market Intelligence. The stock's poor performance can be largely attributed to fallout from the pandemic and the company underperforming Wall Street's expectations, as we'll explore in a moment.
For context, the S&P 500 and tech-heavy Nasdaq Composite indexes returned 28.7% and 22.2%, respectively, last year.
Proto Labs offers both traditional manufacturing and 3D printing services. It doesn't have good comparables, but some imperfect context seems better than no context. With that said, pure-play 3D printing companies Stratasys and 3D Systems gained 18.2% and 106%, respectively, in 2021. While still a quite imperfect comparable, Stratasys is now the better comparison for Proto Labs because 3D Systems sold its on-demand service business in the third quarter of last year.
(Here's why 3D Systems was the best-performing pure-play, U.S.-listed 3D printing stock in 2021.)
A 3D printer. Image source: Getty Images.
So what
Proto Labs' results were significantly hurt by the pandemic. Its customers include numerous industrial companies, many of which paused their ordering during the earlier stages of the pandemic. Proto Labs' bottom-line results haven't rebounded from the pandemic hit to the degree that investors would like to see. The company's earnings fell short of Wall Street's consensus estimates (which were modest to begin with) in both the second and third quarters of 2021.
In the third quarter, total revenue grew 17% year over year to $125.3 million. Organic revenue growth (which excludes contributions from acquisitions made within the last year) was a more modest 8.4%. Adjusted for one-time items, net income fell 46% to $9.7 million, which translated to earnings per share (EPS) dropping 48% year over year to $0.35. This result missed Wall Street's expectation of $0.43.
For the first nine months of 2021, Proto Labs' adjusted net income declined 37% year over year to $31.4 million, and its operating cash flow fell 61% to $32.2 million.
Now what
Proto Labs hasn't yet announced a date for the release of its fourth-quarter 2021 results, but it will probably be about mid-February. For the fourth quarter, Wall Street is modeling for revenue to grow 12% year over year to $117.4 million and adjusted EPS to drop 46% to $0.27.
There's a good argument to be made that Proto Labs stock has been beaten down too much. The company has performed well over the long term. And Wall Street is modeling for it to grow adjusted EPS at an average annual rate of 25% over the next five years.
That said, some investors might want to wait a couple of quarters before making any investment decisions in order to see how the company performs under the current top management team. The CEO is relatively new to the position (he took the reins on March 1, 2021), and as of Dec. 1, 2021, the company is operating with an interim chief financial officer because its long-term CFO reportedly resigned.
