The stock of Proto Labs (NYSE:PRLB, 30-year Financials) is estimated to be modestly undervalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $106.67 per share and the market cap of $3 billion, Proto Labs stock appears to be modestly undervalued. GF Value for Proto Labs is shown in the chart below.
Because Proto Labs is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 8% over the past five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Proto Labs has a cash-to-debt ratio of 12.13, which which ranks better than 79% of the companies in Industrial Products industry. The overall financial strength of Proto Labs is 7 out of 10, which indicates that the financial strength of Proto Labs is fair. This is the debt and cash of Proto Labs over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Proto Labs has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $434.4 million and earnings of $1.9 a share. Its operating margin of 13.77% better than 81% of the companies in Industrial Products industry. Overall, GuruFocus ranks Proto Labs's profitability as strong. This is the revenue and net income of Proto Labs over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Proto Labs is 8%, which ranks better than 68% of the companies in Industrial Products industry. The 3-year average EBITDA growth is 0.6%, which ranks in the middle range of the companies in Industrial Products industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Proto Labs's return on invested capital is 9.21, and its cost of capital is 11.98. The historical ROIC vs WACC comparison of Proto Labs is shown below:
In conclusion, The stock of Proto Labs (NYSE:PRLB, 30-year Financials) gives every indication of being modestly undervalued. The company's financial condition is fair and its profitability is strong. Its growth ranks in the middle range of the companies in Industrial Products industry. To learn more about Proto Labs stock, you can check out its 30-year Financials here.
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