Industrial metals 3D printing specialist Arcam AB (NASDAQOTH: AMAVF) just turned in a solid fourth-quarter and full-year 2014 earnings report on Feb. 5. Its future looks promising, with a record backlog and a recent business win from industrial giant General Electric Company.
However, between Feb. 24 and 27, CEO Magnus René sold 93,000 shares of the company's stock, according to Danish website MarketNews.dk, which quoted the Swedish Financial Supervisory Authority's insiders' list as its source. No exact amounts for these transactions were provided, but from the stock's trading range during this period, I calculated that René netted proceeds of approximately $2 million. After these sales, he still owns 65,712 shares and he intends to exercise 40,000 stock options, according to the same source. (Arcam's stock is listed on the Nasdaq OMX Stockholm, though it also trades over the counter in the U.S. René's sales were on the Stockholm exchange.)
Why would the CEO sell now? Should Arcam investors worry that the top insider just unloaded a huge chunk of his stock holdings and plans to sell more?
Arcam's Q20 for series production of aerospace parts. Source: Arcam.
Many reasons to sell, only one to buy
It's understandable why some investors might automatically view stock sales by company insiders as a negative. Insiders -- especially top ones such as CEOs and CFOs -- usually know better than anyone how well a business is performing and what its future prospects look like. So, indeed, it can be helpful to monitor the moves of high-ranking insiders. However, it's best not to jump to conclusions by remembering the oft-cited adage: There are many reasons to sell, but only one to buy.
Other than the belief that a company's stock price is going to drop because negative news is on the horizon, there are a multitude of other more personal reasons that insiders might sell stock. Oftentimes, simple financial diversification can be behind the move. In fact, this is the reason René cited: "It's for personal reasons, to spread my risk." Additional reasons can include divorce, purchasing a new house, paying for childrens' educations, buying that dream yacht... and the list goes on. So insider sales are much less telling than are insider buys, as there is only one reason an insider will buy shares of his or her company's stock: a belief that a stock price rise is on the horizon.
That said, if multiple top insiders are dumping considerable amounts of stock at the same time, I'd be much more wary. Sure, it could be coincidental, but it certainly calls for a lot of digging. In Arcam's case, it seems we have just one insider selling. (I say "it seems" because data on Arcam is not easy to track down, given the stock is listed on a foreign exchange. In fact, though I recently called Arcam one of the two best 3D printing stocks, I've also cautioned that this information issue makes the stock suitable only for those who are willing to do their homework.)
While René sold a big portion of his total holdings, we're still only talking about a relatively small (for a CEO) amount of money. Furthermore, after the pummeling all of the 3D printing stocks took in 2014, it would seem natural for anyone to want to sell some stock about now in order to diversify his holdings. By late February, Arcam's stock had a nice year-to-date double-digit bounce.
Data by YCharts.
Robust Q4 and 2014 results
Demand for Arcam's proprietary electron beam melting 3D printing systems remains strong. In Q4, the company delivered 15 EBM systems, versus nine in the year-ago period. In 2014, 35 systems made their way to customers, versus 25 in 2013. Furthermore, 19 systems were on backlog at the end of the period, versus 12 in the year-ago period. This backlog should bode well for Arcam's first-quarter or at least first-half 2015 results.
In 2014, Arcam's revenue rose 70% to 339 million Swedish knona (MSEK), or $40.2 million, which included organic revenue growth of 40% to 277.8 MSEK. Excluding a tax benefit of about 15.8 MSEK and non-recurring costs associated with acquisitions, net income clocked in at 50.6 MSEK, a 148% increase over adjusted net income of 20.4 MSEK in 2013. Earnings per share soared to 3.09 SEK, or $0.37, up from 0.95 SEK. On an adjusted basis, EPS rose about 120%.
(The dollar figures are slightly lower than what one would calculate using the year-end exchange rate. That's because of the exchange rate fluctuations over the four-quarter period. The krona weakened considerably against the dollar in 2014.)
Bottom line
I could be wrong, as we can't know for sure what goes on behind a company's closed boardroom door or within an insider's head. That said, it doesn't appear to me that the recent Arcam CEO sales are worrisome. Arcam's fourth-quarter and full-year 2014 earnings report was strong, with no indication of trouble ahead. It seems likely that René is truly selling for the reason he was quoted as providing.
However, investors should keep an eye out to see if there is further insider selling with this stock. I'll be monitoring the situation as best I can, given this stock is listed on a foreign exchange and information doesn't flow nearly as readily in the United States as it does for U.S.-listed stocks.
