I have GREAT respect for this hot trader who I’ve written about how he made nearly $1 million in a few weeks HERE and how I called him the #1 trader on Profitly long before he actually was HERE
Hell my URL shortened link to his newsletter is http://tim.ly/supertrader
I encourage every single one of mystudents to have a subscription to his newsletter (use coupon code FREEDOM30 on any of his annual plans for a sweet discount!
And I’m VERY proud to publish his newsletter and have him speak at my conference every year and create great educational videos like this as to how he’s REPEATEDLY made $300,000-$400,000 on one trade before
His latest big $400,000+ profit being:
Entry comments: DO NOT CHASE !! – 650k float 850k o/s ..someone just paid $5 for 100k shares. PR today about closing patents acquisitions for hundreds of patents. Ran to $15 last time. Will hold as swing.
Exit comments:SUPER TRADE, Original alert was 5 to 16. Entry and exit are averages due to verifying.
Which as you can see on the SPEX Profitly page HERE led to over $100,000 in profits for his students.
The reason why I wanted him teaching his strategy onin the first place was because I’ve seen him call so many exponential winners over the years, he definitely has a knack for it…and that’s why he’s a multi-millionaire worth watching and learning from…hell his long plays have made me $50,000+ in 2013 alone already!
And in this bull market, shorts should be scared of his long picks…as proven by his picking CCCR and LIVE before they tripled and SPEX before it quintupled.
That being said, he does have a habit of hyping up his stocks, sometimes too much…as proven by some of his recent big winners turned losers like MTSL, EAC, DGLY and XGTI as I’ve talked about in DVDs and video lessons.
His Seeking Alpha article yesterday saying how ARCW could be valued $50-70/share with the stock trading at $14ish is a case in point.
As I alerted my newsletter subscribers today, I shorted at just under $17 today because I think this is up on pure hype and misinformation.
Even though I came into today positive on the company, knowing how some of Superman’s picks can really go Supernova, I couldn’t help but research the various red flags I saw as I was actually looking to buy the stock and now believe there is far greater downside risk than upside…hence my short position into this strong/scary-for-short-sellers chart:
My newsletter subscribers know my exact realtime short position, but here are some of the red flags I see and why I continue to remain short as I write and publish this article.
(and no I won’t publish this on Seeking Alpha, I don’t want or need widespread distribution of my articles, they exist for the benefit of my students’ education)
In order of Superman’s Seeking Alpha article’s assertions, here are my thoughts…normally I’d order them in importance, but I’m doing this post as I’m trading too, which is tough, so I just want to get it all out there…let the market decide who is right.
1. Superman says: “ARC’s thesis is that the global manufacturing supply chain is changing, and that the advent of automation, 3D printing, robotics, artificial intelligence and cheaper domestic energy prices will lead the manufacturing renaissance in the US, which is among a key area of focus for ARC.”
The pure play 3D printing stocks like DDD, SSYS and PRLB are very hot, and so we have a ton of wannabe players like PRCP and CIMT…CIMT and PRCP were 2 more Superman picks in early 2013 (I banked off both of them, thanks Superman!) and as you can see from their longterm charts, both retraced nearly all their initial gains within a few weeks of their first spiking…PRCP has continued to go up due to increased 3d printing efforts/press releases, bit CIMT has never regained its initial hype glory.
ARCW is VERY similar to PRCP and CIMT so only time will tell if they decide to hype using key buzzwords like 3D printing, but this trend is very reminiscent of the tech bubble of 1999-2000 when companies would add “.com” to their corporate name and see their stock explode…it worked for a bit until it didn’t and nearly every one of them crashed and burned.
Superman sees a company with a small float that could really spike with the right buzzwords/Seeking Alpha article…props to him for spotting the opportunity and nailing it with his very own article, as his newsletter subscribers know, he bought in the $10s and at the current price of $16, he’s up $90,000+…and many of them are banking too.
But as I’ve told him many times as a newsletter guru , you gotta learn to lock in profits, not every stock will triple or quadruple and he had big gains on EAC, XGTI, DGLY and MTSL only to let them slip away…my guess is he doesn’t even know all the research I’m about to show as he’s not as cynical as me.
Already this morning while defending his position in ARCW, he’s backed off the 3D printing claims saying:
0/31 10:36:34 AM what the short FAILS miserable to understand IS THIS TECH IS REAL AND JUST AS REVOLUTIONARY AS 3D PRINTING….THEIR 3D PRINTING INVOLVEMENT COULD BE NOMINAL BUT MIM AND PIM ARE JUST AS REVOLUTIONARY AND ANY GOOGLE SEASCH COULD TELL YOU THAT
Nobody gives a damn about a potentially new revolutionary technology MIM, the reason this stock is up is because it’s being considered as a cheap, low float 3D printing play (as DDD, PRLB, SSYS wer elinked in the Seeking Alpha article so it shows up on their Yahoo! Finance profile pages too)
2. Superman says:
The numbers are impressive. For the fiscal year ending June 30, 2013, ARCW total sales were $68.5 million, growth of 125.3%, or $38.1 million, over $30.4 million in fiscal year 2012. Sales for the fourth quarter ending June 30, 2013 amounted to $19.5 million compared to $7.7 million in the prior year fourth quarter an increase of 153.7% or $11.8 million. ARC also reported adjusted earnings per share (Adjusted EPS) of $0.30 for the fourth quarter 2013 and $0.85 for the fiscal year ending June 30, 2013. ARCW has maintained a strong cash position for the twelve months ended June 30, 2013; cash flow provided by our operating activities amounted to $7.4 million.
Nah, the numbers actually suck…that 125% “growth” was due to a complicated scheme of reverse acquisitions and if you strip that away and look at organic growth of the combined company, annual revenues for the combined company rose a paltry 2% from $70.4 to $71.9 million.
ARCW readily admits this in the middle of this 50 page SEC filing few will actually read, but nowhere in their glitzy earnings press release would they ever dare to mention suck pathetic “growth”
As you can see from this ugly table copied right from their boring, long ass SEC filing, annual profits actually fell from $2.8 to $2.2 million if you don’t count acquisitions
So now if we look at the real #s, we have this slow growing manufacturing company with terrible, but usual manufacturing industry margins using a few buzz keywords that the man himself who picked this stock is now backing away from.
But wait it gets worse…I REALLY don’t look to trade againstgurus or their subscribers, but when I start digging into a company and see such red flags, I can’t help myself…I’m the guy who ruins the party, it’s just my nature.
3. Superman says:
Additionally, ARCW has stated that acquisitions will be a part of its growth strategy in addition to organic growth. From their website it states, “Acquisitions play a key role at ARC. ARC makes acquisitions in three areas, which are: (i.) areas that are strategic to ARC’s existing business units, (ii.) areas where Arc can vertically integrate in its existing units, and (iii.) new manufacturing niches that fit into ARC’s broader objectives. ARC’s team is highly experienced in mergers and acquisitions, having completed numerous transactions since 2000.”
Acquisitions won’t just “be a part of its growth strategy”, they’re the only part! Without acquisitions, this company is growing 2%/year!!! I feel like I’m taking crazy pills!!!
4. Superman says:
DDD has a P/E ratio of 45, SSYS has a P/E ratio of 45, and PRLB (perhaps the closest comparable to ARCW) has a P/E ratio of 50. These are all based on next fiscal year forecasts. ARCW reported $0.30 EPS last quarter and stated sales are anticipated to continue to increase. With a conservative extrapolation of the last quarter EPS we get a full year $1.20 EPS for 2014 (even though ARCW said it expected growth to continue). Applying the 3D printing P/E ratio average of 47, ARCW would be a $56.40 stock. If ARCW could produce moderate growth and record $1.50 EPS, then applying the 3D P/E ratio would make it a $70.50 stock.
DDD is increasing revenues 40-50%/year in mostly all organic, not acquisition-related growth, SSYS’s revenue growth is 100%+/year, PRLB is growing 25-30%…all of those are pure play 3D printing plays with actual business, not acquisition-related growth…ARCW mentions 3D printing a few times on its website and in press releases…it’s much more like CIMT, which as I showed above, lost all of its Superman-hype related gains over the past few months.
Also, one quarter does not a year make — ARCW reported earnings of 30 cents/share for their latest quarter, but only 85 cents/share for the year…the previous quarter before that they made just 13 cents/share as you can see HERE and that compared to 32 cents/share in the 2012’s corresponding quarter.
In fact, for 9 months ended March 2013, ARCW earned just 27 cents/share compared to 89 cents/share for nine months ending March 2012.
THERE IS ABSOLUTELY NO ORGANIC GROWTH HERE and the company had to acquire/reorganize to make investors believe there was some…they’ll probly try to keep acquiring to make 2014 and 2015 #s look better too, but the market will never value them as a growth company like DDD, SSYS, PRLB (since they aren’t) and it’s a VERY dangerous game to prop up a stock price/expectations in order to achieve better priced acquisitions.
What will happen if the stock doesn’t spike and they can’t acquire growth companies anymore? Danger, danger.
5. Superman says:
More importantly, ARCW has only 5.7 million shares outstanding, a public float of only 1 million shares, and a stock buyback in place.
The 1 million shares that can trade is probly the most important fact here and it’s why the stock has risen so dramatically…there just aren’t that many sellers…but starangely, it’s easy to short at most brokerages (not typical of low float stocks)
But let’s talk about this stock buyback announced on October 10th for a second…because it’s pretty strange…here’s the release:
DELAND, Fla., Oct. 10, 2013 /PRNewswire/ — ARC Group Worldwide, Inc. (NASDAQ Capital Market: ARCW; the “Company” or “ARC”) announced that its Board of Directors has authorized the repurchase of up to $250,000 of the Company’s common stock.
The Company said it may repurchase shares from time to time in the open market or through privately negotiated transactions, depending on prevailing market conditions, alternative uses of capital, other factors and in compliance with applicable legal requirements. The stock repurchase program does not obligate ARC to acquire any particular amount of stock. It also does not have an expiration date and may be limited or terminated at any time without notice.
They don’t say because they think their stock is undervalued like most repurchase plan press releases do nor do they commit much size to the buyback…when it was announced the stock was trading at $7/share so they’re gonna buy roughly 35,000 shares…big whoop, that’s double my initial short position size! Should I put out a press release too?
This “repurchase plan” was designed to aid in the stock spike because the new executives are experienced on Wall Street, not in manufacturing, let alone 3D printing.
Ah yes, Superman fails to mention there’s a whole bunch going on with the executives in this company and how one of them had to resign due to an SEC violation…this is the stuff I just couldn’t help but uncover as this company stinks worse than many of the blatant pump and dumps I short — at least those companies directors don’t violate SEC regulations (or at least they don’t admit it publicly!)
Here’s a fun little note form the SEC filing nobody reads that shows the executives familial and Wall street ties:
NOTE N – RELATED PARTY TRANSACTIONS
In addition, the following officers and directors of ARC are also affiliated with QMI and Brean Murray: Mr. Jason Young, the Company’s Chairman, has been a Managing Director at QMI since 2005, where he is responsible for making investments in US and emerging market companies, and where he frequently serves in active management or director-level roles. Mr. Theodore Deinard, who served as the Company’s Interim Chief Executive Officer and as a director of the Company until he resigned as the Interim Chief Executive Officer of the Company and as a member of the Company’s Board of Directors on April 29, 2013, is a Managing Director of QMI. Mr. Deinard is also related by marriage to an officer of QMI. Mr. Jason Young and Mr. Alan Quasha, an officer of QMI, each serve on the Board of Directors of QMT and receive fees for such services. Mr. Young and Mr. Deinard are each deemed to share voting and investment power over the shares beneficially owned by Brean Murray.
Brean Murray is an investment bank as you can read HERE and they are in control of ARCW with over 60% of the shares owned and they are the reason for this acquisition and stock repurchase strategy…you could say they engineered this entire runup given the company’s underlying problems.
And those problems start with the former CEO Robert Marten who violated SEC laws as the little read SEC filing denotes:
During fiscal year ending June 30, 2012, FloMet loaned its president, Mr. Robert Marten, $303 thousand as represented by a promissory note dated July 1, 2011 (the “ FloMet Loan ”). The balance due to FloMet for the years ended June 30, 2013 and 2012 was $272 thousand and $303 thousand. Interest accrued at June 30, 2013 associated with this loan amounted to $3 thousand. The principal of the FloMet Loan corresponded to the purchase price of certain membership interests which Mr. Marten acquired from FloMet through transactions that originated in 2006 (the “ FloMet Membership Interests ”). Upon the acquisition of FloMet by Quadrant Metals Technologies LLC (“ QMT ”), Mr. Marten received membership interests in QMT (the “ QMT Membership Interests ”) as consideration in exchange for the FloMet Membership Interests. Effective August 8, 2012, the Company acquired all of the membership interests of QMT pursuant to the Membership Interest Purchase Agreement (the “ QMT Acquisition Agreement ”). The QMT Acquisition Agreement included the acquisition of QMT’s subsidiary FloMet. As a result of the acquisition of QMT by ARC, Mr. Marten was issued 83,941 shares of ARC common stock in exchange for his QMT Membership Interests. The FloMet Note survived all of the foregoing exchanges. After the acquisition of QMT by ARC, Mr. Martin became President, Chief Executive Officer and a director of the Company. See, Note P – Subsequent Events.
Nice for a company to loan its president $303,000 in 2011 and have just $3,000 in interest accrued over 2 years, right?
Not exactly kosher so in August 2013 Marten was forced to resign as president/CEO, but would remain on the board as you can see written in little seen SEC filings:
Effective as of August 7, 2013, Mr. Robert Marten has resigned as the President and Chief Executive Officer of the Company. Mr. Marten will remain a member of the Board and will continue to serve as the Chief Executive Officer of the Company’s subsidiaries FloMet LLC and Advanced Forming Technologies, Inc. (both the U.S. and Hungarian units). Mr. Marten has not expressed any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.
But here’s where it gets confusing, Marten at first said he would remain on the board, but then in late September he had to resign that post too as this SEC filing states
Mr. Robert Marten, president of FloMet and the beneficiary of the FloMet Loan, stepped down as President and Chief Executive Officer of the Company on August 8, 2013 and resigned as a director on September 24, 2013.
Fortunately, in this SEC filing, “Mr. Marten has expressed that he has no disagreements with the Company or its auditors or with respect to any matters relating to the Company’s accounting practices.
If I got a loan for $300k and only had to pay 1% interest over 2 years, I’d have no disagreements with the company’s accounting practices either.
But I can’t help but wonder what changed from August to September when he went from not resigning from the board to being forced to resign there too…did he get new legal advice? Did the company get new legal advice? Perhaps the resignations of other boardmembers pressured him out?
We’ll never know, but apparently others don’t like being associated with this kind of stuff as not one or two or even three people resigned…FOUR other higher ups at ARCW, aside from Robert Marten, have resigned in the past 2 months…and that’s why on October 9th they received a letter from the Nasdaq stating:
In connection with the resignation of independent director Willard T. Walker, Jr. on September 26, 2013, ARC Group Worldwide, Inc. (the “Company”), has received a notification letter, dated October 9, 2013 (the “Notification Letter”), from the Listing Qualifications Department of the Nasdaq Stock Market indicating that the Company does not currently satisfy Nasdaq Listing Rule 5605, which requires the Company to have an audit committee consisting of three independent directors.
Some of the directors who resigned were no slouches, this guy Professor Jerrold H. Abrahams is an NYU professor and was chair of the audit committee.
Brean Murray will undoubtedly fix this situation to keep the stock Nasdaq listed as they’ve already said in a recent SEC filings, but the delisting notice isn’t what worries me — it’s the underlying reason for the delisting; that so many people on the audit committee resigned!
What do we have here, a lowly manufacturing company with no organic growth, puny profits, multiple directors resigning, a pathetic buyback program designed to help the stock as the company searches out new acquisitions and make people believe they’re fast growing in a revolutionary space…all engineered by new management who know how Wall Street, not manufacturing, works.
Sorry, but this is a short and this stock can drop $3-5/share from the current $16/share price…maybe even more if I’m right about this whole setup.
My short at nearly $17 is stupendous…I wasn’t looking for this trade, I’m overloaded with work from before my Vegas conference, my World Series trip and before my Europe trip for that matter, but the best trades seek you out, you don’t seek them out and that’s what ARCW did to me.
Be VERY careful longs, this obviously could still squeeze shorts like me, and my #1 rules is to cut losses quickly, but there are too many red flags to ignore here.