I am a big believer in the potential of green technology to both provide substantial environmental, social, and economic benefits. In general, however, my enthusiasm for green-tech has not led to many successful investments. By and large, the public companies that have been available to long-term investors in the green-tech industry have provided very poor returns over the last few years. I believe that much of underperformance can be attributed to poor public policy and political bickering, rather than company-specific decisions. However, since much of green-tech industry still lives and dies by the vagaries of government policy, it still presents a minefield for investors.

So it is with a certain degree of skepticism and caution, based on past green-tech investment failures, that I decided to analyze Appliance Recycling Centers of America, Inc. (ARCI). At the very least, I took some comfort in the fact that the recycling industry appears to be a bit more mature and accepted, at least as compared to other green tech sectors.

Background on Appliance Recycling Centers of America, Inc. (ARCI)

Appliance Recycling Centers of America, Inc. (ARCI) operates in three businesses: They sell household appliances through a chain of approximately 19 Company-owned stores under the name ApplianceSmart,, they provide recycling services for electric utilities and other sponsors of energy efficiency programs, and they have a 50% interest in a joint venture, ARCA Advanced Processing, LLC (“AAP”), which recycles appliances from a 12 state region for General Electric Company (“GE”).

What Went Wrong at Appliance Recycling Centers of America, Inc. (ARCI)?

In the last five years, ARCI growth has stalled and profitability has been erratic. The lackluster financial results in prior years, appears to be due primarily to poor performance at the company’s core retail operations, which still generate the majority of the company’s revenue.

What Changed at Appliance Recycling Centers of America, Inc. (ARCI)? ARCA Advanced Processing, LLC

Despite the fact that ARCI’s retail operations have had a tough time recently, and do not appear to offer much value to investors, the company has slowly been growing a strong appliance recycling business that would appear to have significant long-term potential and arguably provide a much more attractive business model than running retail stores. Notably, in the last fiscal year, revenues from the recycling businesses contributed 34% of total revenue and in the most recent quarter, this contribution jumped to 44%.

A key factor in the current and expected future growth of the recycling business is the company’s 50% interest in a venture called ARCA Advanced Processing, LLC (“AAP”),, which works with GE to provide appliance recycling services. Basically, GE sells all of its recyclable appliances in certain states to AAP. AAP then collects, processes and recycles such recyclable appliances. AAP makes money by selling the scrap metal, and/or other byproducts of the recycled appliances, and by the sale of carbon offsets.

Summary Recommendation: Hold

The ARCI investment story is intriguing and the company’s AAP business will surely generate positive media exposure, which could lift the stock price (see this recent NY Times article). However, from a fundamental perspective, I think that the potential financial impact of the AAP business for ARCI shareholders remains somewhat nebulous, and the economics of the AAP business do not appear all that attractive. Finally, I have certain reservations with ARCI management.

Disclosure No employees of Envoy Global Research own shares in ARCI.