by Debra Fiakas CFA
Shares of Appliance Recycling Centers of America (ARCI: Nasdaq) has trended downward over the last year, despite some strong fundamental progress in the company’s position the recycling sector. The corporate name tells at least part of the company’s story. Besides recycling appliances such as washers, dryers and refridgerators, ARC also sells new and like-new appliances right out of the box. The company has eighteen stores branded ApplianceSmart across the country. Services to electric utilities and other energy companies related to energy efficiency programs provide yet another revenue source.
In the twelve months ending March 2017, ARC reported $101.5 million in total sales, providing $1.2 million in net income or $0.19 per share. Importantly, operations generated $2.0 million in cash flow during this same period. The profits are a welcome improvement over losses reported in fiscal years 2016 and 2015. Sales had been declining and did not fully cover operating expenses in 2015 and 2016.
Besides having a spotty track record in producing profits, ARC also has debt on its balance sheet. At the end of March 2017, the company had $6.2 million in total debt on its balance sheet. This represented a debt-to-equity ratio of 47.52. Debt at any level might give some investors pause, especially if there is no consistent profitability.
Still there are some elements in the ARC story that should interest investors. In April 2017, the company opened a new recycling center in the Milwaukee area. The company has teamed up with a state program to recycle old kitchen appliances, cleaning up the environment and removing unsafe, uneconomical appliances from neighborhoods. The company also launched new contact center services to consumers called Customer Connexx. The service supports scheduling of services of local utility programs related to appliance safety and energy efficiency.
Shares of Appliance Recycling Centers are trading below a dollar a share, which might be off-putting for some investors. For those who are not shy of penny stocks, ARCI could be your stock. The shares are now priced at 4.2 times trailing earnings. There is no forward price-earnings ratio given that the company has a limited following among sell-side analysts. With recent demonstration of recovery (no pun intended!), the stock appears to be priced at a bargain.
Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.
Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.