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Small Cap Play: KS

|Includes: KapStone Paper and Packaging Corporation (KS)

If you are going to invest in a paper company, make sure that they primarily focus on paper packaging and not actual printer or copy paper.  This brings us to our small-cap stock of the week, KapStone Paper & Packaging Corp. (NYSE:  KS). 

The company’s end products include pet food bags, grocery bags, fast food carryout bags, retail gift boxes, take out cartons, beer cartons, and the list goes on.  What is more impressive is how rapidly the company has been able to grow its customer base.  KapStone provides products to over 500 companies, up from just 100 in 2007.  This has helped to contribute to strong growth rates over the past three years.  Fortune magazine listed KapStone as the #20 company on its list of 100 Fastest-Growing Companies of 2011.

3-year average
Revenue Growth: 44%
Profit Growth: 39%
Total Return: 35% 
*Rates from Fortune Magazine

Even with these high growth rates, the company is priced like a value play.  Most growth companies have high P/E ratios and high PVGO as a percent of share price.  KapStone has a low P/E ratio around 9 and a PVGO as a percent of share price of less than 20%.  The company’s financial health ratios (current ratio, debt/equity, etc.) have also shown improvement over the last few years, and are currently at healthy levels.

Relative ratio valuation is fairly attractive at current price levels.  My absolute models say that intrinsic price is about $20 per share.  At high growth rates, this intrinsic price could rise quickly.

Growth must be monitored closely if deciding to invest with this company.  An investment of this nature must be actively monitored.  

Disclosure: I have no positions in any stocks mentioned, and do not intended on initiating a long position over the next 72 hours.

Disclaimer: As with any investment, due diligence is required. The opinions in this article are not intended to be used to make a particular investment or follow a particular strategy.