Why is Protolabs' stock going up so much?

Protolabs has one of the fastest-growing stocks among Minnesota companies this year. The enthusiasm is fueled by a recent acquisition and promising announcements within the 3-D printing industry.

The Maple Plain-based company's shares have spiked nearly 50% this year. Shares of Stratasys, the 3-D printer manufacturer that is based in Eden Prairie and Israel, have risen even more.

While each company does have some interest from short sellers, the recent run-up does not appear to be driven by attention retail investors have given to GameStop, AMC and others.

This week, Protolabs, a contract manufacturer, closed on a $280 million deal to acquire 3D Hubs, an online manufacturing platform that was founded in 2013 and is based in Amsterdam.

When the deal was first announced on Jan. 19, the company said the deal with 3D Hubs would provide more manufacturing partners to its network and give its customers more pricing and lead-time options.

"Our combined organizations will provide the market an industry-leading digital manufacturing solution to serve their needs from idea to prototype to full end-use part production," said Protolabs incoming chief executive, Rob Bodor, in the news release announcing the deal. "Together we can fulfill nearly every custom manufacturing need across the product life cycle."

"That company gets them more into a distributed manufacturing paradigm, where they could feasibly set up production plants closer to the companies they are servicing," said Al Steinkopf, vice president and portfolio manager at the St. Paul-based investment advisory firm Mairs and Power, which owns shares in Protolabs.

Ark Investments, an investment-management firm based in New York and founded by Cathie Wood, invests in disruptive innovation firms and created its successful 3-D printing exchange-traded fund (PRNT, ETF) in 2016. The fund has $132 million in assets and invests in 49 companies. So far in 2021, the fund is up almost 30%.

"Clearly she has identified this area as a disrupter technology that has great potential," Steinkopf said. "Which I agree … but we are also kind of scratching our heads over the valuation that Protolabs had gotten to."

The 3-D printing space has had some interesting developments in the last year. New York-based Desktop Metal went public last year through a merger with a special purpose acquisition company (SPAC) that valued the company at more than $2.5 billion. The company's 3-D additive printer technology can produce metal production parts instead of prototypes made of plastic.

And Wednesday another leader in the space, 3D Systems Corp., announced that it has significantly expanded its development efforts on bioprinting methods that could be used to build the scaffolding for tissues and organs used in regenerative medicine and transplants.

As the industry develops more capabilities its market potential increases. "This industry is headed to more production parts manufacturing capability, more materials and bigger dimensions," Steinkopf said. "The market potential is going to grow, and it can grow substantially."