E Proto Labs - An Exciting Growth Story Lagging Behind Expectations

In the following, Proto Labs (PRLB) is analyzed to provide an opinion on whether the stock is currently undervalued. First of all, the market potential and the market size of 3D printing will be discussed. Afterward, a comparison of peer group companies is made. The advantages of PRLB are shown, and it is explained what draws my attention to this stock. Subsequently, the business model of PRLB is briefly described, and financial figures are critically reviewed. Finally, a growth rate of the revenues is calculated and will serve as a foundation for deriving the CFs and, eventually, the DCF analysis.

Additive Manufacturing Market

The 3D printing, or to put it differently, "additive manufacturing" market is considered by various sources to be a high-growth market. However, it is challenging to determine the growth of such markets precisely. Many different factors need to be considered. A closer look at the latest forecasts brings evidence. According to Wohlers Associates (see figure 1) & Verified Market Research, the market size in 2020 is approximately $16bn.

Figure 1: 3D printing market size according to Wohlers Associates

Source: Wohlers Associates

Wohlers expects the 3D printing market to be $40.8bn in 2024 (see figure 1). This represents a CAGR of about 26%. Another forecast was derived by Ernst & Young. They forecast the market to be $27bn in 2023, which results in a CAGR of 19%.

Using a bottom-up approach, ARK Invest determined the most optimistic forecast of $97bn in 2024 (CAGR 57%).

Figure 2: 3D printing market estimations of diverse institutes

Source: ARK Invest

In 2015, ARK Invest already published a market growth forecast and stated the market would reach  $41bn by 2020 (see figure 3). However, this prediction has proven to be very inaccurate, possibly since the adoption of additive manufacturing is taking place more slowly than expected. Thus, only a fraction of the potential demand determined by ARK Invest was realized.

In contrast, the previous forecasts by Wohlers Associates were more precise. Given the substantial difference between the current market size and past assumptions, the uncertainty of the future market size is very high. Nevertheless, research commonly agrees that 3D printing is growing faster than the market as a whole.

Figure 3: Past 3D printing market estimations

Source: ARK Invest

Comparison of Protolabs with its peers

Companies are active in various areas of 3D printing (see figure 4). Starting with the materials up to the final products. However, firms do not generate the majority of their revenues exclusively through 3D-printing.

Figure 4: Competitive landscape on different 3D printing segment

Source: ARK Invest

In the following two small-caps & two mid-caps will be compared using multiples and key figures of their respective balance sheets (see figure 5).

Materialise (MTLS), Stratasys (SSYS), and 3D Systems (DDD) are not profitable. Therefore, the TTM pe-ratio is negative. While MTLS showed small profits in 2018 & 2019, DDD has only recorded losses since 2015. SSYS similarly has not been profitable since 2012.

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Kurt Benson 5 months ago Member's comment

Wasn't familiar with $PRLB. Sounds like a good pick.