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13 Months Later And I'm Still Cautious On Orchids Paper Products

William Bias profile picture
William Bias


  • Orchids Paper Products ended FY 2014 on a sour note.
  • Orchids Paper Products saw improvement in its revenue and net income so far in FY 2015.
  • Orchids Paper Products isn’t free cash flow positive in FY 2015.

Nearly 13 months ago, my first article was published on private label paper products company Orchids Paper Products (NYSE: NYSEMKT:TIS). In that article, I highlighted its spotty fundamentals including how capital expenditures served as a drag against free cash flow growth. I also discussed its unsustainable dividend payout ratio. At the time, Orchids Paper Products had on an ok balance sheet.

I told my readers that I was staying away based on its low revenue and free cash flow growth rate, small market cap and unsustainable dividend. Since then, the free cash flow situation hasn't improved that much. However, over the past 13 months Orchids Paper Products' stock has given its owners a 20% total return vs 10% for the S&P 500 (see chart below). Let's examine.

TIS Total Return Price Chart

TIS Total Return Price data by YCharts

Sour note

A month later, my Q3 FY 2014 earnings review for Orchids Paper Products was published and things weren't looking much better. I reiterated my bearish stance on the grounds of further degradation in fundamentals. Orchids Paper Products' year-to-date Q3 FY 2014 net income declined 30% year-over-year. Increased costs, most notably stock option expenses drove net income down at the time. Increased capital expenditures drove year-to-date Q3 FY 2014 free cash flow down 39%. I also noted the company's volatile nature related to its free cash flow.

Orchids Paper Products ended its FY 2014 on a sour note. FY 2014 revenue increased 23%, year-over-year, while its net income declined 29%. The acquisition of Fabrica accounted for most of the top line increase. I like to see companies grow by increasing customer demand. The company registered a free cash flow deficit of $5.6 million vs a positive free cash flow reading of $8.6 million in FY 2013. Higher raw material costs, lower parent roll selling prices, acquisition costs and sales commission costs all contributed to lower net

This article was written by

William Bias profile picture
I have been analyzing stocks since 1992 and a freelance writer since 2012.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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