Arrhythmia (ahem, Micron) fighting to get back to profitability

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I said I would weigh in once Fitchburg-based Arrhythmia Research Technology reported its fourth-quarter and year-end 2016 results, and they’ve finally landed. I say “finally” because Yahoo Finance estimated they would be out between March 8-13, and it ending up taking more than a week afterward. Anyway, they’re here.

And they’re… well, kind of blah. For the fourth quarter, Arrhythmia (which, starting Friday, will go by the much more sensible name of Micron Solutions Inc.) reported a net loss of $322,000 (11 cents per share) on revenues of $4.81 million. That’s slightly better than the year-ago results of a loss of $386,000 (14 cents per share) on revenues of $4.75 million.

For all of 2016, Arrhythmia reported a net loss of $712,000 (25 cents per share) on revenues of $19.64 million. Again, the loss was slightly narrower than 2015, which ended with a net loss of $792,000 (28 cents per share) but annual revenues saw a disappointing decline of 8.6 percent, from $21.5 million in 2015.

CEO Sal Emma noted that the 2016 results were “short of sales and profit goals.” He blamed the shortcoming on lower demand from “one large orthopedic customer,”  which of course is always a risk if any one of your customers provides a disproportionate amount of your revenue.   

Another concern is that Arrhythmia is running into a competitive pricing environment with its bread-and-butter sensor products.  

Emma says, however, that Arrhythmia began adding new medical-device and orthopedic customers requiring components used in total knee arthroscopy, surgical instruments and “other implantable fixation devices.” He said margins would expect to improve by the middle of this year. We’ll see.

I do like this company, even though American-based contract manufacturers have gotten killed by global pricing pressures in recent years. I think Arrhythmia has done a good job of diversifying its offerings, most notably with so-called “less lethal” devices — specifically, the 40mm Blunt Impact Projectile used by law enforcement to quell riots and such. It also makes scanning devices used in rifles and festoon clips used to fasten upholstery in automobiles.

I also think Arrhythmia’s valuation is compelling. Shares closed Wednesday at $4.09, given the company a market cap of just over $11.5 million (about 60 percent of annual sales, and that’s pretty modest). And despite being a low-priced stock, Arrhythmia’s shares are not particularly volatile. They post a beta of 0.69, according to Yahoo Finance, meaning they are only 69 percent as volatile as the typical stock.

After losing big money earlier this decade, Arrhythmia posted its only profitable year in 2014, when it earned $659,000, or 66 cents per share. If it can find a way to approach that level of profitability, its current valuation would be seen as extraordinarily cheap — just over six times earnings.

The question is, can it get there — or even close to there?

The low share price makes it easier for small investors to purchase round lots — an even 100 shares of what will soon be called Micron Solutions (Ticker, starting Monday, MICR) currently runs for just over $400, plus commission. For many (but not all) people, that’s an affordable and fun way to get in on a local stock.

I can’t tell you whether Micron is headed for $6 or $2, and as an investor, you have to decide how much you’re willing to lose before getting out.

  

 

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