ARC Document Solutions (ARC) is a digital printing company that also offers document related services in the United States, explains Faris Sleem, a specialist in low-priced stocks and editor of The Bowser Report.
It provides print services, cloud-based document management software, and other digital hosting services. The company has competitive advantages in both industries, digital printing and document-related services in the United States. ARC is a growth and value investment opportunity due to its steady revenue growth and track record of creating value for shareholders.
Although yearly revenue has dropped since 2018, the company’s underlying value has increased. This is due to a financial turnaround in which the company cut expenses, created realistic financial milestones, and started paying a dividend. As a result, EPS has consistently trended higher and trailing 12-month net income is $11.5 million. EPS for the nine months ended September 30, 2022 was $0.21, up 40% from $0.15 in the prior year period.
While most of this can be attributed to its 2019 strategy execution, the company is also expanding its customer base and improving its marketing efforts. Gross margin improved to 33.9% in the third quarter, up 3% from 32.8% in the prior year period. The numbers speak for themselves and ARC is clearly capturing more market share while building value for shareholders.
ARC currently trades below its book value of $3.57 per share and is undervalued relative to its competitors. Its P/E ratio of 9.8 indicates gradual earnings growth and that value investors can get a better bang for their buck.
As long as earnings growth maintains, its book value is likely to increase hand-in-hand. It is also worth noting that this is partially due to its insider and institutional ownership of 15% and 50%, respectively. Insiders were actively buying shares in 2021, but transaction volume has decreased in 2022.
Lastly, the most appealing aspect of investing in ARC is its dividend. The stock pays a quarterly cash dividend of $0.05, which represents a yield of 7%.
Quarterly dividend payments returned during the financial turnaround in 2019 and began at $0.01. Since revenue growth is slower than it was prior to 2018, this makes ARC primarily a value stock, as the dividend yield is sizable in comparison to the rest of the industry.
Therefore, the cheaper ARC shares get, the more its overall appeal increases. In conclusion, ARC is a great investment opportunity below $3 per share for value investors and the benefits of its financial turnaround should reward investors in the years to come.