What happened
Shares of for-hire 3D printing company Proto Labs (PRLB +1.77%) exploded higher in Friday trading, soaring 26.1% through 11:30 a.m. ET after the company beat earnings estimates this morning.
Analysts had only expected Proto Labs to report a $0.21 per share adjusted profit on sales of $109.8 million for Q4 2022. But Proto Labs says it earned $0.26 per share -- and did $115.6 million in sales.
NYSE: PRLB
Key Data Points
So what
Not all of the news was good, however.
Sales for the quarter, while ahead of expectations, still fell 6.5% in comparison to Q4 last year. And while Proto Labs' adjusted profit was $0.26, its actual result as calculated according to generally accepted accounting principles (GAAP) was a loss of $4.24 per share.
That's quite a difference.
Granted, Proto Labs explained that the entirety of its loss was caused by a goodwill impairment charge of $118 million, and that absent this non-cash charge, the quarter would actually have been profitable. But a loss is still a loss, and Proto Labs' Q4 loss wiped out all its previous profits for the year, and pushed the company into a loss for the full year as well as for the quarter.
Full fiscal year 2022 sales were $488.4 million -- showing almost no improvement against last year -- while gross profit margin declined, and the net loss for the year came to $3.77 per share.
Now what
That all hardly seems like the kind of news deserving of a 26% surge in stock price, so what explains investors' unbridled enthusiasm for Proto Labs stock today?
That's hard to say. On the one hand, yes, Proto Labs did achieve "record annual revenue" despite "a challenging economic environment, impacted by inflation, slowing growth and continued supply chain challenges." On the other hand, that record really inched up less than 0.1% year over year, while cost of revenue rose 3%, resulting in less gross profit even before the massive goodwill impairment. And the only place Proto Labs actually cut costs last year was in... research and development! (Hardly the best place to be cutting if you're a growth stock.)
On the other hand, Proto Labs kind of looks like a pretty decent value stock to me today.
Consider that Proto Labs more than doubled free cash flow for the year, to $40.4 million -- not an inconsequential achievement in a year like last year. At a recent valuation of about 24 times free cash flow, and with analysts still forecasting a long-term earnings growth rate of 25%, I can't actually say that Proto Labs investors' decision to buy more stock today is unreasonable.
In fact, even after a year of weak sales growth and a big GAAP loss in 2022, Proto Labs stock might be a bargain.
