PRLB - Protolabs: Negative Trends Aren't Fully Priced In

2024-06-17 08:55:33 ET

Summary

• Protolabs has been an industry leader in the digital manufacturing space, but the business faces numerous risks.
• The company's injection molding business could be disrupted by 3D printing.
• Protolabs faces increased competition in its markets, forcing management to spend more on sales and marketing.
• Protolabs has a history of value-destroying acquisitions.

Introduction

Protolabs is a digital manufacturer specializing in low-volume custom parts manufacturing. This segment of the market is considered inefficient and underserved relative to high-volume parts manufacturing. Protolabs is also more profitable than competitors because of automation. However, the markets in which Protolabs operates are experiencing increased competition and, in some cases, obsolescence risk. Management has tried to sustain growth through M&A, but I'm concerned that Protolabs is overpaying for acquisitions. The market appears aware of these challenges: the stock is trading for ~$30 per share, down from $250 in 2021.

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