Undervalued Arcam Has A Possible Upside Of 120%

Feb.13.13 | About: Arcam AB (AMAVF)

Arcam (OTCPK:AMAVF), that Sweden based 3D printer company, is undervalued again.

Since the last clear undervaluation in December the stock price has roughly doubled. Back then it was about expectations that Arcam would be profitable enough to have a prosperous future. That came true when Arcam released the result for 2012 and it was able to improve its profit margin from 5% to 10% and make a record quarter in terms of sales and order intake.

Those who have followed Arcam stock for some time may have noticed the rapid stock valuation growth to $40 and devaluation back to below $34. Some people say it is because of the IPO of ExOne (NASDAQ:XONE), a potential competitor in 3D printing business. Some claim that Arcam stock was overvalued at near $40 levels. I say that Arcam has true potential and it is undervalued at the moment. Arcam Stock is also starting to show signs of growth again.

Based on the 2012 result, Arcam EPS is $0.65, stock price is $33.75 so that gives us a P/E of 52. That is hardly too high for a growing company that is in one of the hottest industries at the moment. The P/E ratio gets even lower when you consider the possible 2013 earnings. At the end of 2012 Arcam had an orders for 10 3D printers compared to 1 order at the end of 2011. The figure below describes how much and how easily Arcam is able to improve its earnings per share considerably and make the stock price relatively even cheaper.

Q1 '13 est Q4 '12 Q3 '12 Q2 '12 Q1 '12
Earnings per share 0,16 est 0,60 0,00 0,06 0,00
Order intake 5 est 12 5 5 2
Delivered systems 5 est 8 3 2 2
Order book at period end 10 est 10 6 4 1
Click to enlarge

With a backlog of 10 systems Arcam can easily deliver at least 5 systems during the first quarter compared to 2 systems a year ago. 5 systems could generate an EPS of $0.16 for the first quarter compared to -$0.006 for Q1 2012. This would give us total trailing EPS of $0.80 after first quarter and with the current P/E of 52 the stock price should be $41.6, a nice 23% upside there. With a large order book, improved capability to manufacture new machines, growing profit margins and increasing order intake Arcam could deliver 25-30 systems this year with even greater profitability than before. I presume we could see EPS of 1.28-1.60 a year from now. Due to the hot nature of 3D printing industry we can expect more alignment of the P/E figures to the other companies in 3D printing industry which are 98 for 3D Systems (NYSE:DDD) and 94 for Stratasys (NASDAQ:SSYS). With EPS of 1.28 and P/E of 60, the stock price would settle near $76.

There has been 4 trading days of free fall for Arcam stock. I am not to say that today was the turning point, but the stock price is already at a bargain level and rising again. Arcam stock is still very volatile but can return nice profits. For a risk, there may be a reward.

Disclosure: I am long OTCPK:AMAVF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.