Scalper1 News
Summary The ARK Industrial Innovation ETF’s expense ratio of 0.95% coupled with the firm’s concentration on riskier holdings makes this an investment to avoid. The overvalued price to earnings ratio of the fund combined with the poor sales growth and historical earnings % makes this ETF unattractive. The leaders of the Ark Industrial Innovation ETF are Delphi Automotive and Nvidia Corp. The main laggard is Stratasys, Inc. In the comment section of my most recent analysis regarding the Robo-Stox Global Robotics and Automation Index ETF (NASDAQ: ROBO ), one person asked if there were any suitable ETF for an individual that craves exposure to robotics and automation. I gave a succinct answer with a mention of the Ark Industrial Innovation ETF (NYSEARCA: ARKQ ). While this ETF may be a bit more attractive than the ROBO-STOX Global Robotics and Automation Index ETF, it is not attractive enough to recommend as an investment. In mathematics, it is not merely sufficient to give the final answer. The math teacher will often insist that we show our work to support the final answer. Consider this article as my shown work. According to Yahoo Finance, here are the 1 month, 3 month, 6 month and YTD Returns for the Ark Industrial Innovation ETF. TIME PERIOD ARK INDUSTRIAL INNOVATION ETF RETURN ROBO-STOX Global Robotics and Automation Index ETF Return 1 MONTH 1.01% -1.16% 3 MONTH 9.15% 10.30% 6 MONTH -3.79% -9.31% YEAR-TO-DATE -1.13% -5.00% In comparison, the ROBO-STOX Global Robotics and Automation ETF only posted a higher 3-month return than the ARK Industrial Innovation ETF. Throughout this ETF, there is a whole lot of evidence that suggest that the fund manager may have invested in full of holdings that have unproven earnings and sales in spite of their overall potential. Evidence of this can be seen in the large percentage of mid-cap, small-cap holdings and micro-cap holdings that is displayed in the following chart. SIZE % OF PORTFOLIO BENCHMARK CATEGORY AVERAGE MEDIUM 30.65 18.63 23.79 SMALL 19.80 5.41 11.69 MICRO 13.15 0.32 1.39 The significant exposure to these riskier holdings seem more inconvenient when one considers the fund’s expense ratio. The ARK Industrial Innovation ETF’s expense ratio is 0.95%, which is 0.41% higher than the Morningstar category average . Investors may be willing to take on this exposure given a more attractive expense ratio. Unfortunately, this fund does not provide that. Value and Growth Measures Stock Portfolio Benchmark Category Average Price/Prospective Earnings Ratio 26.03 19.01 22.08 Price/Book 2.20 3.54 3.87 Price/Sales 2.30 2.61 2.74 Price/Cash Flow 16.77 11.69 11.49 Long-Term Earnings % 13.76 11.87 16.96 Historical Earnings % 3.96 9.38 15.18 Sales Growth 4.18 7.65 16.73 Cash Flow Growth % 16.86 9.82 12.78 If you look at the following chart, one can see that the statistics illustrate overvaluation of holdings with regards to stock price in the price/earnings ratio. One can also see that the fund holds many holdings with unproven sales and earnings as indicated by the fund’s undervalued price/sales ratio. This can also be seen by the paltry sales growth and historical earnings figures compared to their benchmarks and category averages. However, the fund does have a higher cash flow growth rate than the Morningstar benchmark and category average. This should provide some optimism for investors as increased cash flow could hopefully lead to a higher sales and net income in future earnings reports. LEADERS OF THE ARK INDUSTRIAL INNOVATION ETF Delphi Automotive PLC (NYSE: DLPH ) Delphi Automotive PLC is a manufacturer of vehicle components and provides solutions in terms of electrical, electronic, safety and thermal technologies to consumer and commercial vehicles worldwide. Delphi has the fourth highest portfolio weight in the fund at 4.67% and has a total YTD Return of 20.79%. Delphi’s last quarterly earnings report fell short of expectations. In spite of increased EPS and net income , Delphi’s revenue fell 3.6% year-over-year due to unfavorable currency impacts especially with regard to the euro. Delphi’s stock price fell more than 7% on the news but has rebounded by 8.5% since the date of the report. Delphi Automotive has just completed a $1.85 billion dollar acquisition of the HellermanTytonGroup PLC, a worldwide leader in cable management solutions. This acquisition will aid in the company’s effort to position themselves as a leader in the connected car phenomenon. It is expected to boost the firm’s potential EPS by $0.15 and provide 50 million dollars in synergies by the end of 2018. Delphi Automotive has just received an upgrade to “Buy” by Sterne Agee and is rated a “Buy” overall by analysts. Nvidia Corp (NASDAQ: NVDA ) Nvidia Corp is a visual computing company that operates across multiple regions. Nvidia Corp has the ninth highest portfolio weight at 3.41% and a YTD Return of 67.40%. NVIDIA’s stellar quarterly earnings sparked the firm’s stock price increase by 11.8% during the month of November. Nvidia’s revenue increased by 6.5% to a record revenue total of $1.305 billion dollars while its net income increased by 42% year-over-year to $246. Additionally, GAAP EPS increased 42% year-over-year to $0.44. NVIDIA made tremendous progress in its gaming segment with the introduction of the GEForce GTX 950 GPU. Additionally, NVIDIA made strides in the virtual reality space with the introduction of the NVIDIA Gameworks VR and NVIDIA Designworks VR. NVIDIA Corp has also gained firm control of the discrete graphics card market. At one point, the firm surpassed 80% in unit market share during its last fiscal quarter. The firm’s shareholders will be very thrilled with the firm’s 18% increase in quarterly cash dividend due in fiscal 2017. MAIN LAGGARD OF THE ARK INDUSTRIAL INNOVATION ETF Stratasys, Inc. (NASDAQ: SSYS ) It is rather puzzling why this stock has the most portfolio weight (6.71%) in the ARK Industrial Innovation ETF. As I have recently pointed out on Market Eyewitness , Stratasys is ripe for the picking due to increased competitiveness from the low end of the 3-D Printing market. Stratasys, Inc. has the second worst YTD return in the fund with a total of -67.77% Stratasys’s recent 6-K results were so poor that the firm would have had a net loss that was 6x as much as last year’s net loss in spite of the $695 million dollar impairment charge. Stratasys’s product revenue declined by 35.2% in the firm’s latest quarterly report. This is a clear sign that hobbyists and DIY enthusiasts have found other alternatives to the firm’s Makerbot division. In a recent list of the top 20 3-D desktop printers by 3-D Hubs, the Makerbot 3-D Printer did not made the cut. As a matter of fact, the two worst fund holdings in terms of YTD return are Stratasys, Inc. and 3D Systems (NYSE: DDD ). 3D Systems has an YTD Return of -68.06%. BOTTOM LINE: As stated above, I cannot recommend the Ark Industrial Innovation ETF as an investment even though it may be a better alternative than the Robo-Stox Global Robotics and Innovation ETF. In addition to the overvaluation in terms of the fund’s P/E ratio, the fund is too concentrated on riskier firms with an unproven history of sales and earnings. The lack of sales growth is disconcerting and the low price-to-book ratio may be indicative of investing in companies that may have fundamental deficiencies. Stratasys and 3D Systems could be considered Exhibit A and Exhibit B in that regard. Scalper1 News
Scalper1 News