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Stora Enso: Fundamental Trends And Momentum Suggest Good Returns

Mar. 09, 2018 11:55 AM ETStora Enso Oyj (SEOAY)9 Comments
Ruerd Heeg profile picture
Ruerd Heeg


  • Ranking 853 low EV/EBIT stocks on multiple value metrics shows Stora Enso is cheap. Simultaneously it has a good combination of strong and smooth momentum. This predicts good statistical returns.
  • Stora Enso is transforming from a paper business to a renewable materials business. This transformation seems to be progressing well.
  • Investors seem to take the new, more specialized products into account in their valuation of Stora Enso: up from the lower multiples for a commodity producer.
  • There is a slow trend: replacement of conventional packaging materials by paper. Also land for growing trees will only get scarcer.
  • Much of the new demand will come from developing countries, with fast growing consumption.

Stora Enso Oyj (OTCPK:SEOAY) is a big investor in tree plantations and companies processing these trees into paper and other wood products. Apart from on the OTC the shares also trade in Helsinki, Finland and in Stockholm, Sweden. The primary listing is in Helsinki. The shares traded in Stockholm are similar to the ADRs traded on the OTC in the US.

What piqued my interest in this company are the huge land holdings. Could they be worth more than book value? It is difficult to say, but I assume the difference is not so big. The company has 2 minority stakes in more pure play forest companies and gives some insight in their profitability. I noticed these 2 other companies do not have a high return on equity. So at least these stakes are probably not worth more than book. I will discuss one of these stakes in more detail later in this article.

Another reason for why I find this company interesting is most stocks from quantitative screening are unnoticed small caps. I find it interesting that this stock is a well-known large cap. What could be different for this well-known large cap to be cheap enough to appear in my quantitative value/momentum screen?

To find this company I have compared valuations of 853 selected momentum stocks. These stocks have been selected on momentum criteria and fundamentals (mainly EV/EBIT < 20). Among these selected stocks 82% of the stocks has a less favorable rank on a combination of value factors than Stora Enso. In particular Stora Enso is relatively cheap based on the ratios EV/Gross Profit and Retained Earnings from 8 years/Market cap.

BTW, I use several quantitative methods to source investment ideas. One of them is similar to Trending Value described in the book What Works on

Final remark

I do not invest in these US-listed stocks since stocks I find with my international screener are much cheaper and therefore have higher average returns. See again my free overview article Use your extraordinary edge with these 2 investment strategies for details.

Join me here if you like having many statistically favorable positions instead of having a few high-conviction stocks.

This article was written by

Ruerd Heeg profile picture
As a mathematician (Ph.D.) I use 7 quantitative strategies with statistically extremely high returns. I select these cheap companies with software comparing thousands of global stocks on value metrics, liquidity, quality metrics, and momentum. I focus on global nanocaps and net-nets. Check Turning Rough Stones: turningroughstones.substack.com

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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (9)

Hi Ruerd I’m up 110% on Stora and still buying in. Nice article and agree with most of your logic.
Good analysis, in depth review. Thank's.
Tudor Invest Holdings profile picture

Not sure it's a very profitable industry to be in. Their competitor, Norske Skog, just across the border (in Norway), is bankrupt . I suspect there is too much capacity with a depressed commodity price

Ruerd Heeg profile picture
Agree that pure forest companies are probably not very profitable. Also in the article I mentioned the 2 minority stakes are in other forest companies and they are not very profitable companies either. And Stora Enso's paper business it not nearly as profitable as the rest, as I also wrote above.

However a "nice business" implies consensus, and unfortunately it is difficult to make money on the stock market with consensus. In particular Stora Enso is more than a forest/paper business.

What matters most to me this is a good stock on a statistical basis: with great momentum and relatively cheap based on multiple value factors. And there are good reasons for the good momentum, such as profit growth and a high Piotroski score. Such stocks are not high conviction picks but if you buy many of them you will do well on average.
Tudor Invest Holdings profile picture
Agree to disagree :) Norske Skog is not a pure forest company. They also make paper (for newspaper industry etc.).

I am not one to try to educate you on investing. Your method might be perfect for you. Nevertheless, I do think that it is not wise to look only at statistics and numbers. It pays to look beyond that. Sometimes, things look cheap for a reason.

Ruerd Heeg profile picture
As I disclosed, no position since I find much cheaper stocks when including non-US-traded stocks in my ranking. I agree with you this one is not really cheap, although it is pretty cheap compared to other US-traded momentum stocks, especially those with smooth momentum.

Stora Enso has little dependency on plain paper (newspapers etc). Norske Skog has only 2 US patents, one of them pretty old, while Stora Enao has 115 fairly recent patents, which also suggests these 2 are quite different companies.
Great analysis...thanks!
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