Year End #14: Small positions - AMAVF (Arcam)

I have had a long relationship with Arcam (AMAVF) as well. It’s a Swedish 3D printing company that specializing in printing in metal for the aerospace and medical implant industries (so far). I first bought into it in early December of 2012, at $15.38, after reading a very informative article on Seeking Alpha. During the 3-D printing craze, this stock got as high as $197. (I sold most of my position at about $180). I subsequently split 4:1 so in current prices my entry was about $3.85 and I sold out at about $45.00. Recently I got back in with a small position at between $18.30 and $19.50 (say $18.90 average).

This is a great little company, so why did I get out. Well, during the craze, 3-D stocks went out of sight, including Arcam, in spite of moderate growth rates, and I thought it was ridiculous (been there, did that, in the internet bubble of 1999).

Why did I buy back in: Well all the news about Arcam has been very, very good, and the price has gradually come down to $18 ($72 pre-split). What was the good news? Well here is a list of the multimillion dollar orders they received in the last 4 months of 2014:

Received two separate orders for EBM systems for clients in Italy and in China.Business Wire (Dec 31)
Order for an Arcam Q20 system from Italian industryBusiness Wire(Dec 23)
Arcam: Order for an EBM system from Japanese industryBusiness (Dec 22
Order for Two Arcam Q10 Systems from Implant Customer in China Dec 15)
Order for Arcam Q10 System from Implant Industry Business Wire(, Dec 4)
Order for Five Arcam Q10 Systems from Lima Corporate Business Wire(Dec 4)
Arcam: Order for EBM System from an Institute in China Business Wire(Dec 2)
Arcam: Order for EBM System from European Industry Business Wire(Dec 2)
Arcam: Order for EBM System from European Aerospace Industry, Nov 26
Arcam: Order for EBM System from US Aerospace Industry Nov 25)
Arcam Receives Order for EBM System from Asia Business Wire(Tue, Nov 11)
Arcam: Order for EBM system from Asia Business Wire(Fri, Oct 24)
Arcam: Order for EBM System from Implant Manufacturer Oct 16
Arcam Receives Order for an Arcam Q20 System Oct 14
Arcam Receives Order from Russia Business Wire (Mon, Oct 6)
Arcam: Order for EBM System for Material Development Business Wire Sep 23)
Arcam Receives Order for a Q20 System from France Business Wire (Tue, Sep 9)
Arcam acquires strategic partner DiSanto Technology Business Wire (Wed, Sep 3)
Arcam Receives Order from Russia Business Wire ( Sep 3)
Order from ProtoService in Italy for a Second Arcam Q10 System(Aug 26)

"With these two orders we close 2014 with a total order intake of 42 EBM systems, an increase of about 55% compared to the order intake in 2013”. These are also newer, fancier, and higher priced.

If you go to their website, or the yahoo finance ARCM.ST or AMAVF boards, you can read all about the company, and their machines.

If you go to either MF or Seeking Alpha and enter AMAVF or Arcam you’ll find lots of articles about the company.

I also got in a hassle on the XONE board when both XONE and Arcam were about $50 to $60. Same old song: “Why would you buy XONE which is losing lots of money when you can buy Arcam, doing the same thing (metal printing), which is making lots of money? Xone is still losing money, and has fallen to $16.50 now. Arcam is at $18.50, but it has split four for one, so pre-split it’s equivalent to $74.00!!!

For comparison, here’s a quote from XONE’s last earnings report”

"We continue to struggle with predicting timing of our machine sales and therefore we are lowering our expectations for 2014 revenue based on clearer visibility for the remainder of the year. We’re focused on our development activities, especially initial customer reaction to our production-oriented machines currently under development, which can be applied to a variety of industrial applications.

XONE is still a buy on MF and Arcam has never been recommended.

So why am I not buying a larger position in Arcam?

It’s a foreign company and while it’s listed on Nasdaq in Europe, it’s not listed in the US. That means the AMAVF board has little volume and wide spreads. And if I want to buy it in Europe where there’s plenty of volume, I have to call Schwab, place the order with the foreign desk, and it’s a hassle as well as lots higher commission.

Being a foreign company, although their earnings reports are translated into English, it’s hard for me to be sure that all the terms are equivalent, and the ways of calculating, etc.

And the earnings jump around because of the lumpiness of the shipments,

And they report in Swedish Krona’s.

And…

So I’m keeping my position small. I couldn’t help myself getting back in when I kept seeing all those orders roll in, but I have companies with equally good pictures without the hassles of a foreign company. If they got listed on the US Nasdaq and had to follow US rules, and report in dollars, I’d buy more in an instant.

Saul

12 Likes

More on Arcam can be found in some old posts on the SAS XONE forum. And on the New Paradigm Investing forum , if you can avoid the politics.
It is the highest conviction company I own.

But the price of the stock has fallen in direct proportion to increases in sales and profits. And this in a bull market.
Despite the linkage , IMO the outlook for Arcam the company has almost nothing to do with any of the other companies in the 3DP sector. AMAVF the stock is another matter. The P/E has fallen with the stock price decline but the E are going up. The EBM technology is unique and well locked in by patents.

2 Likes

But the price of the stock has fallen in direct proportion to increases in sales and profits. And this in a bull market.
Despite the linkage , IMO the outlook for Arcam the company has almost nothing to do with any of the other companies in the 3DP sector. AMAVF the stock is another matter. The P/E has fallen with the stock price decline but the E are going up. The EBM technology is unique and well locked in by patents.

Hi Mauser, That’s why I couldn’t resist buying back in, even if it’s a small position.

Saul

I have never left Arcam, because I find that the best way to remember to keep track of something is to own some. And because I have done a lot of investigating, including reading most of the Arcam patents and academic articles on EBM…
I have been buying around 18 too. But not expecting any quick return on my money. The best thing about Arcam is the Fast EBM and other free to them research which puts 3 to 5 times better machines only a few years away.

Mauser, you say Arcam is your highest conviction stock. How do you deal with those problems I enumerated which keep me cautious?
Saul

The Swedish bit doesn’t worry me. Chinese yes, Swedish no. Arcam (US) is small cap and easily manipulated but arbitrage will keep it deviating for long from the parent company . With some brokers it essy to to buy overseas stocks , but it’s not worth the trouble for me.
If the krona is a bother, buy the parent company.

Long term I ignore exchange rates. Because I can’t predict them (if I could I would have more money than Buffett) and they could just as well be favorable a few years from now. Furthermore a weak krona is a big advantage to Arcam now, it means their machines are cheaper if bought in dollars.

Unlike my sole Chinese company Arcam execs speak great English and CC are in English. Also unlike Chinese, Google translates Swedish well.

Lumpiness yes. But it will get less as they sell more machines. I suspect there is some seasonality too.

At this time ,details of their financial statements are less important to me than the number of machines sold. . Because earlier customers seem to be buying more in many cases. They must like what the machines can do. If they like these, they will like 5 times faster and more accurate ones coming over the next several year even better.

BTW I use a rough estimate of 7 to 8 years from lab to production. Longer if it i something radical new.

3 Likes

Thanks, all good points but putting it all together I can invest in it, but not call it a highest conviction stock. But that’s just me.

Saul

Well, of course, highest conviction is always relative to what else one holds and what standard one applies. If one includes old stalwarts that are unlikely to fail, but also unlikely to do anything exciting, that provides a kind of conviction, but not everyone includes those sort of companies in one’s portfolio. If the overall goal of the portfolio is to identify a certain number of 10 baggers, even if several of the rest produce nothing, then I don’t find it hard to see Arcam as highest conviction for that kind of company.

2 Likes

The conviction comes from study of the science behind the company and the technology, not the stock. So it is not a high conviction stock, but a high conviction company. Just as Intel was to me in it’s early days.

I have no idea whether AMAVF the stock will be higher or lower 6 months from now, just an educated guess that Arcam the company will be selling lots more machines 4 or 5 years from now. That is why it is a conviction. I never have much conviction about any short term movement of a stock. At most I hope the odds are a bit in my favor…

But that is just an opinion, and I certainly would hope nobody pays much attention to it until they have studied EBM in detail. Certainly the stock is not acting well these last months, momentum is not good, the price may go lower , the P/E is still not at bargain levels.

But I am willing to wait. This is one of the few stocks I would hold during the inevitable next bear market. That is one definition of conviction.
My record at picking innovative companies is pretty good but my record at timing purchases and sales leaves a great deal to be desired.

2 Likes

I wonder if you guys weren’t American whether this would make you a little less apprehensive thru xenophobic in your investing risk appraisals. I find it amusing as I am NOT American nor am I Swedish but that doesn’t stop me investing in ARCAM as well as Sketchers, Solar City, Skyworks, Sierra Wireless, Ubiquiti Networks etc.

Investing in American stocks involves: foreign exchange risk, language differences, local governance standards & technicalities, international exchange transaction costs, time zone risks and exposure to the American brand name for me but I am prepared to do it and I’m not bleating about it but I find it amusing that you big, brash, omnipresent Americans are so concerned about scary prospects involving the “Rest of World”.

Come on you are bigger and better than that. Treat investment prospects on their credentials please.

Ant

4 Likes

I have no idea whether AMAVF the stock will be higher or lower 6 months from now, just an educated guess that Arcam the company will be selling lots more machines 4 or 5 years from now. That is why it is a conviction. I never have much conviction about any short term movement of a stock. At most I hope the odds are a bit in my favor…
…Certainly the stock is not acting well these last months, momentum is not good, the price may go lower , the P/E is still not at bargain levels. But I am willing to wait. This is one of the few stocks I would hold during the inevitable next bear market. That is one definition of conviction.

Hi again Mauser, I can understand that way of thinking. That’s the way I think about BOFI. I held it through the drop from over 100 to 60 something. But I feel I know all about Bofi, especially with the help of Fletch and others (I think Anirban too did a nice eval of them). I don’t have the same security feeling with Arcam. Just individual taste, I guess.

Saul

I wonder if you guys weren’t American whether this would make you a little less apprehensive thru xenophobic in your investing risk appraisals. I find it amusing as I am NOT American nor am I Swedish but that doesn’t stop me investing in ARCAM as well as Sketchers, Solar City, Skyworks, Sierra Wireless, Ubiquiti Networks etc.

Hi Ant, I don’t think its xenophobic. CRTO is a French company, after all, and I have a big position in it. The difference between it and AMAVF is that CRTO is listed on a US exchange and I can thus buy or sell it instantly, with ease, and at a normal commission. You see, for us there are soooo many US listed companies, it’s hard to see why to fool with a company that is complicated to invest in. It may be a good company, but probably not better than many companies that are easy to deal with. I hope that explains it.

Saul

2 Likes

I believe you ca trade foreign stocks directly at both Schwab and Scottrade

https://advisor.scottrade.com/brokerage-services/commission-…

http://www.schwab.com/public/schwab/nn/articles/Going-Global…

It might cost more for some stocks…

But as I mentioned unless you are a day trader arbitrage between US ADR and the foreign stock makes sure the price doesn’t deviate a lot.
Arbitrage is almost risk free over anything more than a short time so it is very popular with pros who pay little or no commissions. The small cap of the US version of Arcam does make it more volatile and harder to trade large positions. But since I am no Warren Buffett that is no problem, and may actually help get lower prices if you let a lowish bid dangle in front of brokers.

It costs me an extra $50 to trade a five letter stock like AMAVF but some brokerages don’t charge that premium, Ameritrade for one. I generally avoid non-US stocks myself for economic reasons, not xenophobia.

Denny Schlesinger

It costs me an extra $50 to trade a five letter stock like AMAVF but some brokerages don’t charge that premium, Ameritrade for one. I generally avoid non-US stocks myself for economic reasons, not xenophobia.

Denny Schlesinger

Not sure how the US brokers work when purchasing foreign companies but I know from my Singapore friends that buy US securities, they always have to factor in the exchange differences as well. Every time they buy or sell, the SGD is exchanged to USD and back. Perhaps they can link their account to a USD account to remove the exchange risk off the trade dates and just to the currency in general. I keep funds in both currencies and look at the returns only is their respective currencies as that is likely were the funds will stay.

Somehow I have never thought about just keeping cash in a foreign currency. But since I have few foreign stocks and no two in the same country it probably doesn’t make sense for me.

Generally I have enough trouble figuring out what is going on in my own country where i know the language , business outlook and politics. The further away but I go the more I am likely to be the last to know
. Sweden is a jump, but most of the CC ,interview etc are in English, the culture is part of Western developed country, business ethics are similar, and Swedish Google translates well. So I feel comfortable. Especially because the science is universal. And at the core a bet on Arcam is a bet on a good science that has a strong likelihood of getting better, a science that can help solve the eternal trade-off battle between weight, reliability and strength in specialized areas like aerospace. The company has rapidly increasing sales and profits. So what’s not to like? Maybe the stock price.

China is another matter. I have one relatively modest investment there (KNDI) but I never feel that I really know what is going on. But I do like the narrative, the idea that they are trying something mostly new, and the fact that a strong government force seems to be behind them,.Sort of a Sino “don’t fight the Fed”

Somehow I have never thought about just keeping cash in a foreign currency

I only hold Singapore dollars and USD in currency and stocks. But I have been here for 10 years now, all my pay, expenses and condo is here so it makes sense for me to keep cash and investments as well and not think about returns effected by exchange rates as I don’t try to move funds back and forth.

Denny,

I’m pretty sure TDA hit my account with an extra $15 fee for buying AMAVF several months ago. Showed up when I viewed transactions as a special fee not associated with any stock. Only discovered it was AMAVF fee when I called TDA.

D.

$50 additional fee for me to trade arcam too

http://www.nytimes.com/2008/06/11/business/worldbusiness/11i…

why aircraft manufacturers will turn to titanium 3DP

Weight

Japan Airlines is suspending beer sales on domestic flights, except in first class, on domestic flights, for a savings of 210 pounds, or 94 kilograms. Cathay Pacific in Hong Kong is stripping some of its 747 freighters of paint, removing as much as 440 pounds, per plane.

The financial pain of higher fuel prices is particularly acute for airlines because it is their single biggest expense. Eight years ago, 15 percent of the price of an airplane ticket went to pay for jet fuel. Now, it is 40 percent, according to the Air Transport Association, the U.S. airline industry’s trade group.

Fuel costs are lower with lower crude prices, but oil prices are unpredictable,whereas weight savings is completely predictable.Lighter aircraft cost less to fly under all circumstances.

Arcam up 7% this AM for no known (to me) reason.