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Triple C International (Shenzhen) Co.,Ltd.

Home > News > Is Orchids Paper Products A Buy?

Is Orchids Paper Products A Buy?

2018-07-30

Summary

Orchids Paper Products is trading at a significant discount.

That said, better established competitors who offer sustainable dividends are also trading cheaply.

As Orchids does not have as durable a long-term outlook, it is difficult to recommend at this time.

Orchids Paper Products Company (TIS) seems undervalued at present, but the weakness of its business model - offering cheap products in lieu of well-known brands - does not enable it to compete well in the long-term with better-established companies that are trading at decent valuations.

Orchids' undervaluation results from the fact that it lost a lot of favor since their 2017 Q1 results were reported on May 1, 2017. Not only did Q1 EPS of -$0.08 miss estimates by $0.19, not only did Q1 revenue of $35.35 million miss estimates by $4.75 million, but they suspended their quarterly dividendpayments to shareholders. The justification was as follows:

Orchids is committed to our growth strategy of expanding capacity, expanding our markets and sales, and leveraging our low costs of production... the Board considered it prudent and the responsible course of action to suspend the quarterly dividend to preserve financial flexibility and ensure our capital is allocated to further the success of our business.

How has Orchids performed since last year?

Quarter Revenue ($) Net Income ($)
2017 Q1 35.35 million -860,000
2017 Q2 38.44 million -2.05 million
2017 Q3 45.17 million 705,000
2017 Q4 43.52 million 8.88 million
Total 2017 162.48 million 6.67 million

So, there were significant improvements in the third and fourth quarters. However, 2018 Q1 saw a net income decrease, albeit with strong revenue.

Quarter Revenue ($) Net Income ($)
2018 Q1 48.25 million -2.29 million

And over the past year, the share price has also seen a significant decrease, having plummeted 74.71% from its 52-week high of $15.74.

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