First Eagle Investment (Trades, Portfolio) adds to its stake in ARC Group Worldwide (ARCW, Financial) on June 3, buying 54,500 shares at a price of $2.25 per share.
ARC Group Worldwide is a leading global advanced manufacturing and 3D printing service provider. It provides a holistic solution to its customers and helps them get to market as quickly as possible. In addition to being the world leader in metal injection molding, ARC is a leading provider of metal and plastic 3D printing, tooling, plastic injection molding, machining, thixomolding, glass-to-metal seals, metal stamping, flanges and wireless equipment. The company also brings significant expertise in lean manufacturing, robotics and automation. It was founded on Sept. 30, 1987, in Utah.
ARC Group Worldwide has a market cap of $43.6 million, an enterprise value of $101.6 million, a P/B ratio of 1.05 and a P/S ratio of 0.41.
According to ARC Group Worldwide's most recent 10-K filing, the company believes that multiple sectors of its business have a strong differentiation against its competition:
- "Metal Injection Molding. We are a large and well-respected MIM provider. As a pioneer of MIM technology and driven by our material science understanding, powder metallurgy experience and established global facilities, we are one of the most advanced MIM operators in the marketplace. ARC provides high-quality, complex, precision, net-shape metal components to market-leading companies in numerous sectors, including the medical and dental, firearms and defense, automotive, aerospace, consumer durable and electronic devices industries. Further, our process is highly automated, utilizing advanced robotics and automation to ensure high levels of quality and efficiency.
- "3D Printing. We offer a variety of 3D printing solutions with an emphasis on (i) metal 3D printing and (ii) rapid and advanced conformal tooling. In general, given promising signs of growth and related barriers to entry, we believe the metal 3D printing sector to be one of the more attractive segments of the overall Additive Manufacturing (“AM”) industry. Furthermore, metal 3D printing, while a complex technology still in its early stages, shares several fundamental similarities with our MIM business, thereby helping to accelerate our research and development. Separately, our metal 3D printing capabilities enable ARC to offer a variety of new services, including rapid prototyping, rapid tooling and short-run production, helping our customers improve their product speed to market. Given our established customer base, diverse metallurgy background and scalable injection molding capabilities, we believe we are well positioned in the industrial metal 3D printing market.
- "Growth Opportunity in Industrial 3D Printing. The Additive Manufacturing industry has begun to displace some traditional manufacturing technologies, and we believe this trend may continue. In particular, the industrial metal 3D printing service sector could outpace growth in the overall Additive Manufacturing industry given associated cost and production efficiencies, particularly in the aerospace industry."
ARC Group Worldwide recently won the most metal injection moulding (MIM) awards at the 2016 Powder Metallurgy Design Excellence Competition.
You can read the full report from the company's website by clicking here.
Another good sign for ARC Group Worldwide is that the company has been improving its earnings before interest, taxes, depreciation and amortization (EBITDA) by 23.61% annually over the previous 10 years.
Below is a chart for ARC Group Worldwide (EBITDA).
ARC Group has multiple good signs; however, GuruFocus has detected a few severe warning signs for the company that are noteworthy for investors:
- The gross margin has been in long-term decline. The average rate of decline per year is -7.7%.
- Asset growth: Faster than revenue growth. If a company builds its assets at 195.2% a year, faster than its revenue growth rate of 59.7% over the past five years, it means that the company may be getting less efficient.
Below is a Peter Lynch Chart for ARC Group showing that the company is trading above its intrinsic value.
In conclusion
ARC Group Worldwide is a global leader in advanced manufacturing and as a 3D printing service provider. The company has tremendous growth opportunity in 3D printing, and it has increased its EBITDA by an average of 23.61% annually over the previous 10 years. The company has a few severe warning signs, but ARC retains its competitive advantage with its experience in its industry and the fact that 3D printing is a high barrier of entry business. Since First Eagle Investment (Trades, Portfolio) added to its stake, the stock has risen 9% in price.
Cheers to your investment success.
Disclosure: Author does not currently own any shares of this company.
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