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Orchids Paper: Toilet Paper Never Looked So Dirty - Bankruptcy By The End Of The Year?

White Diamond Research profile picture
White Diamond Research


  • Each 2018 quarter, Orchids Paper (TIS) has had a consecutively worse financial performance.
  • For the past two quarters, Orchids' gross margin has been almost 0%, while its SG&A and interest expense have ballooned to unsustainable levels.
  • We believe the banks won't extend Orchids deadline for a sale of its assets, and it will file for Ch 11 bankruptcy by the end of the year.
  • TIS recently rose over 100% on insignificant news, which we believe creates a good short opportunity.
  • Next quarter, marketing for new customers will be even harder for Orchids as competing ultra-premium tissue manufacturing facilities will begin production.

We Predict Orchids Paper Will Go Bankrupt Before The Year Is Over

Source: orchidspaper.com

We believe Orchids Paper (NYSEMKT:TIS) is going bankrupt, and it will happen soon, likely before the new year. The recent bounce two weeks ago on relatively insignificant news provides some room to short. We believe the equity is worthless as we show in this report.

The hygienic paper industry has been the worst it has ever been for producers for a couple of years now, and it keeps getting worse for Orchids Paper. Prices have come down, while costs have risen. For example, the price of hardwood pulp, an ingredient in tissues and toilet paper, has surged about 60% since late 2016. We don't believe Orchids shareholders will come out of this tough period with any value in their shares.

In an article from tissueworldmagazine.com published on 7/2/15 it states:

The brand producers - P&G, K-C, and GP - compete strongly with TAD products. But other smaller players - Clearwater, First Quality, and Kruger - started up four new TADs in the last four years to compete more strongly in the ultra and premium categories.

Orchids Paper isn't even included among the producers above. And the company repeatedly mentions in earnings calls how because it's an ultra-premium tissue producer, like TAD products, it has an edge in the industry.

For the first time in any of its earnings report filings, Orchids Paper warned about the possibility of filing for Chapter 11 bankruptcy protection in its latest Q3 2018 report. It states:

We may elect to implement such a transaction through Chapter 11 of the United States Bankruptcy Code in order to obtain court supervision and approval of the transaction and to facilitate the stakeholder approvals necessary to implement such a transaction, or it may otherwise become necessary

This article was written by

White Diamond Research profile picture
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Analyst’s Disclosure: I am/we are short TIS. 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.

Additional Disclosure: http://whitediamondresearch.com/disclaimer/

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Comments (8)

Anyone have any thoughts on where and what is going on with TIS right now? Since they haven't declared BK I'm assuming they must have entered into some lender force deal that I would think would be announced fairly soon.
Still a zombie ....
Guessing another extension since no announcement

It is a zombie that you can’t kill
White Diamond Research profile picture
The interest rate is up to 10.9% now, that's bankruptcy level. SG&A jumped as well, that's money that is being thrown out the window from the lender's perspective. This zombie is running out of flesh to eat.
I agree

But I would have expected the announcement already. Makes me think something else is in the works
I can't believe the lenders would give them another extension but then again I didn't think they would get the last one.
ASB Capital profile picture
Thanks for the hat/tip. I look forwarding to reading your stuff!
angrypuppy profile picture
great research!!
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