Why Proto Labs Stock Popped 13.5% in April

By Beth McKenna Markets Fool.com

What happened

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Shares of Proto Labs(NYSE: PRLB) soared 13.5% in April,according to data fromS&P Global Market Intelligence. The quick-turn manufacturing service provider'sstock is up 19% for the year through May 8.For context, the S&P 500returned 1% in April and has returned 7.9% so far this year.

The 3D printing stocks are the best peer group we have for Proto Labs, though this group is far from ideal for comparison purposes, since 3D printing comprises just a small portion of Proto Labs' business -- it accounted for about 11% of total revenue in the first quarter of 2017. That said, shares of the two leading diversified 3D printing companies, Stratasysand 3D Systems (NYSE: DDD), gained 20.8% and 5.8%, respectively, in April, and are up 64.7% and 42.6% in 2017. It's obvious that the investor enthusiasm that began creeping back into the 3D printing space in 2016 is still alive and well in 2017.

Data by YCharts.

So what

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There's no doubt about what drove Proto Labs' stock up in April: the release of its first-quarter 2017 earnings. The stock soared to a closing gain of 8.1% on April 27 after the earnings report. Moreover, likely reflecting investor optimism, the stock was up solidly in the two trading days that preceded the earnings release, for a total three-day gain of 14.3%.

Indeed, there were reasons for investors' enthusiasm. In the first quarter, Proto Labs' year-over-year revenue grew 10.5% and its adjusted earnings per share (EPS) jumped 16%. Both results were significantly better than Wall Street analysts were expecting. CEO Vicki Holt, on the earnings call, attributed the good results to an improved economic environment and the initial success of the company's new sales initiatives. Moreover, Proto Labs remains profitable on a generally accepted accounting principles basis, with GAAP EPS rising 15%.

Investors were obviously also at least satisfied, if not pleased, with Proto Labs' second-quarter guidance. The company expects year-over-year revenue to increase 6% to 14%, adjustingfor discontinued operations and the impact from foreign currency, and adjusted EPS to grow 0% to 11.8%.

Image source: Proto Labs.

For some context, 3D Systems reported last week that its first-quarter revenue grew just 2.5%, with organic revenue growing in the ballpark of 1.5%. While its adjusted EPS did increase a solid 20%, this dynamic won't continue for long, as a company needs revenue growth to fuel earnings growth over the long term. Moreover, 3D Systems remains unprofitable from a GAAP standpoint. (Stratasys has not yet reported its Q1 results.)

Now what

The reason behind Proto Labs stock's robust performance last month is quite material to an investing thesis. So while one quarter is just one quarter, investors waiting on the sidelines might consider pulling the "buy" trigger if the company continues posting solid results for the next quarter or two.

As for 3D Systems, there were some reasons in its report for investors to be optimistic -- notably, its healthcare revenue jumped 29% year over year -- but those who are interested in gaining exposure to the 3D printing space by investing in a company that is currently GAAP profitable should pass 3D Systems by and consider Proto Labs.

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Beth McKenna has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Proto Labs. The Motley Fool recommends 3D Systems and Stratasys. The Motley Fool has a disclosure policy.