Stock Tip Tuesday…

Arc Document Solutions (🇺🇸: $ARC)

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They’re not all pretty

Look, everybody all wants to invest in the Apples and Googles of the world because they are high tech sleek goldmines. While that’s good and all, it isn’t always practical and easily found. Sometimes the most value is in the plain Jane companies that people would throw aside because they seem boring.

Today I’m going to introduce you to one of these companies. Say hello to ARC Document Solutions. ARC is a specialty digital printer and scanning services provider to businesses of all kinds. Now I know you might be turning your nose up already, but these guys offer more than meets the eye. Essentially it’s a high tech printing company. So, when you go to stores, airports or a conference and see large displays of all variety, they are done by someone like Arc. Not a lot of people can do this as there is a required infrastructure and capital needed creating a barrier for entry. However, for a so called small company Arc have been successfully making a great name for themselves for some time. This is seen in the clients they have landed like Nike, Chevron, Starbucks, West Field mall and Netflix.

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Where’s the value ?

Like stated before they guys have connections and large clients, but the real area I see the value for the company lies in it’s balance sheet.

Now I’m not going to bore you with every detail of this companies accounts, you can do that yourself. What I will say is it’s very strong. 

And a few keys areas I liked are as follows. Firstly it’s margins. With its revenue at $285 million for the last 12 months and a gross margin of 33.3%. It shows they have a niche and have found decent pricing for the high quality products. Secondly Its leveraged free cash flow is $24.8 million. Which if you don’t know is the cash left over after a company has covered its essential costs and debt-related expenses, which can be used for other purposes like paying dividends, investing in new projects. Which the company has used to great effect buying back 2.5% of the stocks float last year and paying a dividend of 6.8%. However, the most promising use of this cash is how they are reinvesting in the business.

With R&D (research and development) at 7.1 million the eyes are firmly set on the future of the business. It really gets interesting though when you follow the money and see what they are investing in.

One of the smartest pieces of advice that was floating around during the .com bubble was. “Why consider investing in an internet stock that’s way up when you can buy a chair company that is using the internet to sell more chairs”.

And that’s exactly what ARC is doing with it’s R&D. They have begun investing in AI the new technology improve things like scanning to be more efficient, there marketing and all their internal systems as well. To on a whole improve the product and service the client.

So instead of buying a company that slashes AI in its name and hop on the trend, buy one that actual uses the product to improve its business.

Thank you
That’s All Folks

Thank you for reading. Like usual. Not financial advice.

We don’t own stock in ARC. Full disclaimer here

Cheers,