What happened

Shares of 3D printing company Proto Labs (PRLB 0.13%) leapt 12.4% through 10:30 a.m. ET Friday after the company reported strong Q1 profits and revenues earlier in the morning.

Analysts had forecast that Proto Labs would earn only $0.23 per share (non-GAAP) on sales of $118.2 million this quarter. In fact, Proto Labs earned $0.30 per share on sales of $125.9 million, beating predictions on both the top and bottom lines.

So what

That's the good news. Now here's the bad.

Begin with sales. Yes, $125.9 million is an impressive figure, and it exceeded Wall Street's Q1 2023 expectations by 6.5%. However, it represented barely a 1% gain over Q1 2022 sales for Proto Labs.

As for the profit, well, $0.30 per share sounds pretty great, too -- but it was a non-GAAP figure. When calculated according to generally accepted accounting principles (GAAP), Proto Labs' profit was actually only $0.10 per share -- two-thirds less than the headline figure and down by nearly half compared to last year's Q1.

Now what

CEO Rob Bodor explained the weak results by noting that Proto Labs is pressured by "a challenging economic environment, amplified by rising interest rates and slowing manufacturing activity."

Management didn't give specific guidance for future quarters, but CFO Dan Schumacher cautioned that Proto Labs' customers are asking for "longer lead times" on their orders and favoring the company's "lower-priced offerings" -- which doesn't sound like great news for either sales growth or profit margins.

Analysts seem to agree with that assessment, predicting continued sales weakness in Q2 and flat results for the year. Profits are expected to continue declining in both periods.

By year end, analysts' forecast of $1.16 per share for Proto Labs, relative to the company's current share price, implies the stock is trading for nearly 28 times pro forma earnings. For a company with stagnant sales and declining profits, Proto Labs stock looks too expensive to buy.