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Orient Paper (ONP) has been making a lot of press over the last year. They have been accused of fraud by Muddy Waters in August and just released audit reports last month supposedly clearing them from all charges. The auditors could find nothing wrong. So ONP should be clear sailing, right? Well, the last month has not been very encouraging. Clearly, there is still market skepticism. But fraud or not, I say this is a short term, if not long term, buy.

The chart below shows the price movement with the 14-Period RSI (Relative Strength Index). I will focus first on divergence, which is the easiest to spot. I color coded bullish and bearish movement to make it easier to see. Bullish movement is circled in purple and bearish movement is circled in green.

(Click to enlarge) Source: MSN Money

As shown, the technicals were flashing a bearish signal long before the Muddy Waters report and the stock’s subsequent crash. Likewise, it also spotted the price bottom before it rose.

Now, let’s zoom into the last three months to see it there is any opportunity.

(Click to enlarge) Source: MSN Money

There doesn’t look like any divergence, so we have to look for other clues. General consensus says that when the RSI goes above 70 is overbought and when the RSI goes below 30 is oversold. So no, the RSI has not reached 30 yet, so it is not oversold using this generalization. However, notice that the RSI goes below the line of its last low, shown in black. The last time that happened, the price shot up. So assuming this will happen again and taking this line to be an oversold indicator, one can predict that the price will rise.

Even the 14-Period MFI (Money Flow Index) gives a bullish signal.

(Click to enlarge) Source: MSN Money

General consensus says an MFI of 80 is overbought and an MFI of 20 is oversold. But since it never reached 20, lets use 30 for a base line, since that’s where it hit a trough two times before. And the MFI has just recently crossed the 30 line, so we can expect an uptick in price soon.

Lastly, it is safe to look at the fundamentals to compliment the technicals before buying a stock.

Below is a list comparing ONP to its competitors and the industry. Statistics are from Yahoo Finance.

O%

operating margin (%)

P/B

price/book

tPE

trailing PE ratio

PEG

price/earnings/growth

fPE

forward PE ratio

R/S

revenue/share

P/S

price/sales

%

% short

Price

O%

tPE

fPE

P/S

P/B

PEG

R/S

%

ONP

$5.55

11.94

6.83

5.55

0.88

1.10

0.27

$7.22

9.5

CLW

$81.20

12.14

11.55

13.12

0.70

2.28

1.11

$117.3

3.5

IP

$27.99

7.75

52.91

10.52

0.50

1.91

5.61

$57.24

2.6

MERC

$8.11

15.47

5.67

13.08

0.29

1.26

0.76

$29.41

5.1

MWV

$27.21

7.27

43.12

15.73

0.73

1.42

1.65

$36.70

1.3

WY

$20.57

5.55

5.25

35.47

1.69

2.33

20.02

$26.63

9.3

Industry

--

9.39

9.73

--

0.58

--

1.11

--

--

Everything looks good. Price is lower than revenue per share. The trailing PE is near the lowest in the group, and the forward PE is the lowest. The stock is selling for less than its sales, and the PEG is the lowest in the group. Thus, at least in the short run, ONP looks a buy.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Despite Recent Bad Press Orient Paper Looks Like a Buy