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Arcam (OTCPK:AMAVF) reported today (in Swedish) that fourth quarter 2012 sales were 62.5 SEK ($10.0 million), more than double the 25.1 SEK ($4.0 million) reported in the third quarter. It delivered 8 new EBM systems in the fourth quarter, as compared to 7 systems delivered in the first nine months of 2012. Sales for the year were 139.1 SEK ($22.3 million), up 29% from 2011 sales of 107.7 SEK ($17.2 million). Net Income for the fourth quarter was 13.7 SEK ($2.2 million), bringing total 2012 income to 15.0 SEK ($2.4 million). Earnings per share for 2012 were 4.04 SEK ($0.65), up 275% from 2011's 1.47 SEK ($0.24).

Arcam is a manufacturer of high end 3D printers that are used by companies in the aerospace, medical device, and other fields to develop prototypes and manufacture objects in metals such as titanium. Arcam is based in Sweden and was founded in 1997, but became publicly listed in the United States only in mid-2012.

Arcam enters 2013 with an order backlog for 10 systems, of which 6 are scheduled for delivery this year. One additional order was received in January from the Japanese company MTC. The following graph shows system orders received by quarter for 2011 and 2012:

(click to enlarge)

Other highlights from the annual report include:

  • Sales of consumables and services in 2012 amounted to 42.5 SEK ($6.8 million). These aftermarket sales grew relatively weakly over 2011 levels because prices were reduced in order to increase competitiveness.
  • In January 2013, Arcam doubled its production capacity over 2012 levels.
  • With grants from the European Union's Seventh Framework Program, Arcam expects significant improvements to its products' power, construction speed, precision and beam power. These improvements will be implemented in 2013.
  • At the end of 2012, Arcam had 50 employees.

Based on this information, I have made the following projections for Arcam for 2013:

  • 25 systems delivered in 2013, up 67% from 15 in 2012.
  • Sales of 230.0 SEK ($36.8 million), up 65% from 2012.
  • Earnings of 25.3 SEK ($4.0 million), with the profit margin increasing from 10.8% in 2012 to 11.0% in 2013.
  • Earnings per share of 6.77 SEK ($1.08), up 66% from 2012.

Before the fourth quarter report was released, Arcam's shares were trading at a p/e of over 60. With the new results, Arcam's value looks quite favorable in comparison to other 3D printer manufacturers:

Arcam3D SystemsStratasys
Revenues 2012$22.3M$352.99M$196.9M
Est. Revs. 2013$36.8M$442.22M$418.5
YOY Revenue Incr.67%25%113%
TTM EPS$0.65$1.23$1.39
2013 Est. EPS$1.08$1.57$1.88
YOY EPS Incr.66%$28%35%
Recent Share Price$32.00$58.92$81.16
Market Cap.$119.52M$3.36B$1.77B
P/E TTM49.286.495.58
P/E Fwd. 12 mos.29.637.543.2
Price/2013 Revenues3.27.64.2

Arcam has growth rates comparable or better than 3D Systems (NYSE:DDD) and Stratasys (NASDAQ:SSYS), but has a significantly lower p/e ratio. The evidence suggests that the potential for Arcam's growth rates in 2014 and beyond should also remain high. Therefore, it seems reasonable to expect that Arcam should have a comparable forward p/e to 3D Systems (at 37.5) and Stratasys (at 43.2). If Arcam had a forward p/e of 40.0, its price would be $43.20. I believe $43.20 is a fair value for Arcam's stock today.

While Arcam appears to continue to be undervalued by the market, it remains a speculative stock. The fact that it is over the counter inhibits its liquidity. The fact that it reports its results in Swedish and not English also diminishes its liquidity for U.S. investors. Its machines are expensive, and industrial capital investments could diminish in the event of adverse economic conditions. While it does not appear at this time that Arcam has any competitors within its niche, new competitors could develop. It is uncertain how large the market for Arcam's printers is. As Arcam points out in its report, the lead time for sales of Arcam's machines is long, and the relatively small number of machines it sells makes it vulnerable to significant quarterly variations. Please proceed with caution.

Source: Arcam Reports Excellent 4th Quarter Results