Proto Labs vs. Xometry: Which Stock is a Better Buy?

3-Dimensional (3D) printing, also known as additive manufacturing, is a technology that involves a layer-by-layer addition of material to form an object with the usage of a 3-dimensional printer. It represents a state-of-the-art method of product development and production.

According to Mordor Intelligence, the global 3D printing industry is estimated to hit $63.46 billion by 2026, growing at a CAGR of 29.48% during the forecast period. 3D printing is gaining acceptance in various industries, including healthcare, automotive, aerospace, and defense. 

With this in mind, I intend to compare and analyze two stocks: Proto Labs, Inc. (PRLB) and Xometry, Inc. (XMTR), to determine which one presents a better buying opportunity. 

Founded in 1999, Proto Labs operates as an e-commerce-driven digital manufacturer of custom prototypes and on-demand production parts around the world. It offers injection molding, computer numerical control machining, 3D printing, and other services. Based in Derwood, Maryland, Xometry offers an AI-driven marketplace that connects enterprise buyers and manufacturers across the globe. It provides CNC machining, sheet metal, 3D printing, injection molding, urethane casting, materials, and other products.

Over the past six months, shares of PRLB are down 37%, while XMTR stock lost 42% over the same period.

Recent Developments 

On December 10th, Proto Labs announced that its management team had approved a $50 million increase in its stock buyback program, expiring on December 31st, 2023. With this increase, the stock repurchase program presently stands at $150 million, which equals about 10% of PRLB’s total market cap. Undoubtedly, this development should positively impact PRLB share price, thus supporting the company's stock in the long term.

On February 2nd, Xometry announced the $250 million pricing of 1.00% convertible senior unsecured notes, maturing on February 1st, 2027. Net proceeds will be used for working capital and general corporate purposes, including strategic investments and acquisitions. Although this development created short-term selling pressure, it should enhance the company’s liquidity position with a moderate cost of debt. 

Financial Overview & Analysts Estimates 

On October 28th, Protolabs reported earnings for the third quarter of 2021. In Q3, Proto Labs' revenue increased 16.6% year-over-year to $125.3 million. This revenue growth was primarily driven by a 31.8% increase in CNC Machining revenue, 14.1% increase in 3D Printing revenue, and 8.3% increase in Injection Molding revenue. However, the company missed the Wall Street consensus by $2.02 million. 

Its net income decreased 67.1% year-over-year to $4.84 million, leading to lower than expected Non-GAAP EPS of $0.35 (missed by $0.08). Besides, the company’s gross margin decreased from 50.8% in 3Q2020 to 44.1% in the third quarter of 2021 due to cost inflation. 

Currently, Wall Street expects PRLB's EPS to decrease 45.20% YoY in the fourth quarter of 2021 to ($0.27). However, its fourth-quarter revenue should stand at $117.91 million, implying a 12.07% YoY increase.

On November 10th, Xometry released its third-quarter earnings report. In Q3, total revenue grew 35.2% year-over-year to $56.73 million, beating analysts' revenue estimates by $2.21 million. The revenue growth was due to a 61% increase in the number of active buyers to 26,187, resulting from investment in sales and marketing. 

Although the company's third-quarter net loss increased 137% YoY to $14.7 million, it reported GAAP EPS of ($0.33), topping analysts' estimates by $0.30. Also, Xometry’s gross profit margin has been reported at 25.6% compared to 24.3% as of 3Q2020.

For the fourth quarter, the analysts expect XMTR's EPS to stand at ($0.30). Besides, analysts forecast that its current-quarter revenue should come in at $65.94 million.

Comparing Options Market Sentiment

Taking a look at the February 18th, 2022 option chain for both PRLB and XMTR, let's calculate options market sentiment by comparing the open interest levels. In PRLB's instance, the open calls/open puts ratio at the $50.00 strike price is 0.46x, implying a bearish options market sentiment. For XMTR, the open calls/open puts ratio at the $45.00 strike price comes in at 11x, showing a strong bullish market sentiment.  

Conclusion 

I believe that XMTR, at these levels, is a better long-term buy. Although both companies should benefit from the industry's growth in the long term, XMTR’s higher-than-anticipated revenue and EPS look more compelling. In addition, the company improved its gross profit margin and increased the number of active buyers. Finally, XMTR has a strong bullish options market sentiment at the moment, indicating a share price appreciation.

PRLB shares were trading at $51.00 per share on Monday morning, up $1.39 (+2.80%). Year-to-date, PRLB has declined -0.68%, versus a -5.41% rise in the benchmark S&P 500 index during the same period.

Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist.

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