Is There An Undervalued 3D Printer Manufacturer? Yes: Arcam AB

| About: Arcam AB (AMAVF)

Manufacturers of 3D printers have had quite a run-up: 3D Systems (NYSE:DDD) is up more than 300% this year and Stratasys (NASDAQ:SSYS) almost 250%. Some of the reasons for the escalating value of 3D printing companies are:

  • 3D printers have become reliable and affordable in both commercial and private settings;
  • The ability to create a product on a computer and then easily turn it into a physical object empowers the design and prototyping process;
  • 3D printing does not create the waste of trimmings and scrap that many traditional manufacturing methods produce;
  • 3D printing makes it economically feasible to produce one-of-a-kind items;
  • The capabilities of 3D printers in terms of materials, cost and speed is still not competitive with traditional manufacturing, but is advancing rapidly; and
  • 3D printer manufacturers are profitable and their revenues are growing rapidly.

There are also some caution flags, not so much about 3D printing itself, but rather about the sky high valuations 3D printer stocks have attained.

There is one 3D printer manufacturer that does not seem to be overvalued and that has been largely overlooked by the market. Arcam AB (OTCPK:AMAVF), a 3D printer manufacturer based in Gothenburg, Sweden was founded in 1997 but only began trading in the U.S. in June of this year. Arcam is much smaller than 3D Systems and Stratasys, but its relative valuation is quite favorable:

3D Systems



Market Capitalization




Price/Sales (TTM)




Trailing P/E




Profit Margin




Operating Margin




Return on Assets




Return on Equity




Total Debt




Arcam sells 3D printers that serve a unique niche that other companies may find very hard to enter; Arcam printers produce in metals such as Titanium (TI) and Cobalt Chromium (CoCr). Arcam has a proprietary technology called "Electron Beam Melting" (EBM) that works in a vacuum to produce metal objects with material properties nearly identical to metals formed with traditional methods. Arcam's unique ability to work with these metals is important first because they are expensive, so 3D printing's lack of waste is extremely valuable, and second because these metals are used for their light weight, so 3D printing's capability of producing objects without unnecessary mass is also extremely valuable.

Arcam currently has two products: one focused on the aerospace and automobile industries and the other focused on the medical industry. Aircraft manufacturers use Arcam printers for such things as manufacturing titanium landing gear parts, while race car makers use Arcam printers to build components and prototypes, and health care companies use Arcam printers to make such things as acetabular cups for hip replacements and customized implants for trauma surgery.

Arcam's quarterly financial reports are only available in Swedish, so my analysis of their quarter ended September 30 is limited to my understanding of Swedish and the capabilities of Google Translator, but strong growth trends are evident. Arcam delivered 7 systems during the first nine months of the year, of which 3 were delivered in the third quarter. There were orders outstanding for 6 systems at September 30 (and a seventh order was received on October 1) and it is expected that these systems will be delivered "primarily" in the fourth quarter. Revenue is not recognized until delivery to the customer. Arcam had 49 employees at the end of September.

Among the systems sold this year was a system for Oak Ridge National Laboratories; Arcam states that they expect that this will accelerate interest in their products in the U.S. Three of the systems sold this year were to expand manufacturing of orthopedic products; Arcam estimates their printers are currently manufacturing more than 20,000 orthopedic implants annually and that these volumes will grow.

With outstanding orders, I expect Arcam sales to reach $25 million for the fiscal year ending December 31, 2012. We will want to watch sales trends closely to estimate 2013 revenues, but $35 to $40 million seems attainable. This revenue growth with no change in market recognition of value justifies a target price of $25 by February 2013, representing more than 100% increase from its current trading value. If 2013 sales continue the trend that has been evident in the third and fourth quarters of 2012, and if the market valuations assigned to companies like DDD and SSYS begin to applied to AMAVF.OB, a target as high as $75 could be set for late 2014. We believe that Arcam also could be a potential acquisition by a larger company.

Disclaimer: As an OTC ADR with very low trading volume, there are significant liquidity risks. This article is not a recommendation to invest; please do your own research and consult a professional advisor.

Disclosure: I am long OTCPK:AMAVF, DDD, SSYS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.