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Is International Paper Co. (IP) a Suitable Value Pick?
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Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put International Paper Company (IP - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, International Paper Co. has a trailing twelve months PE ratio of 15.10. This level compares pretty favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.31.
If we focus on the long-term trend of the stock the current level puts International Paper Co.’s current PE near its median (which stands at 15.01) and much below the highs experienced for the stock, over the observed period.
Further, the stock’s PE currently compares unfavorably with the Zacks classified Paper & Paper Products industry’s trailing twelve months PE ratio, which stands at 14.81. At the very least, this indicates that the stock is relatively overvalued right now, compared to its peers. However, International Paper Co. has historically always traded at a PE less than that of the industry’s till towards the beginning of 2016. This clearly shows that the stock is on an uptrend.
We should also point out that International Paper Co. has a forward PE ratio (price relative to this year’s earnings) of just 14.26, so it is fair to say that a slightly more value-oriented path may be ahead for International Paper Co. stock in the near term too.
PS Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, International Paper Co. has a P/S ratio of about 1.00. This is lower than the Zacks categorized Paper & Paper Products industry’s average, which comes in at 1.12 right now.
Notably, IP is actually in the higher zone of its trading range in the time period per the P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.
PEG Ratio
While earnings are certainly important, it is essential to know how much you are paying for the growth of earnings as well. One can easily do that with the PEG ratio (ratio of the P/E to the expected future earnings growth rate).The PEG ratio gives a more complete picture of the valuation of a stock than the P/E ratio.
International Paper Co.’s PEG ratio stands at just 1.25, compared with the Zacks Paper & Paper Products industry average of 1.72. This suggests a decent undervalued trading relative to its earnings growth potential right now.
Broad Value Outlook
In aggregate, International Paper Co. currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes International Paper Co. a solid choice for value investors.
What About the Stock Overall?
Though International Paper Co. might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘C’ and a Momentum score of ‘D’. This gives IP a Zacks VGM score—or its overarching fundamental grade—of ‘C’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been mixed at best. The current quarter has seen no estimate go higher in the past thirty days compared to three lower, while the full year estimate has seen two upward revisions and two downward revisions in the same time period.
This has had a small but meaningful impact on the consensus estimate, as the current quarter consensus estimate has moved south by 6.4% in the past month, while the full year estimate has remained constant. You can see the consensus estimate trend and recent price action for the stock in the chart below:
This mixed trend is why the stock has just a Zacks Rank #3 (Hold) despite strong value metrics and why we are looking for in-line performance from the company in the near term.
Bottom Line
International Paper Co. is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (Bottom 29% out of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall.
Notably, over the past two years, the Zacks Paper & Paper Products industry has widely underperformed the broader market, as you can see below:
So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 ""Strong Buy"" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 ""Strong Sells"" and other private research. See these stocks free >>
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Is International Paper Co. (IP) a Suitable Value Pick?
Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put International Paper Company (IP - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, International Paper Co. has a trailing twelve months PE ratio of 15.10. This level compares pretty favorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.31.
If we focus on the long-term trend of the stock the current level puts International Paper Co.’s current PE near its median (which stands at 15.01) and much below the highs experienced for the stock, over the observed period.
Further, the stock’s PE currently compares unfavorably with the Zacks classified Paper & Paper Products industry’s trailing twelve months PE ratio, which stands at 14.81. At the very least, this indicates that the stock is relatively overvalued right now, compared to its peers. However, International Paper Co. has historically always traded at a PE less than that of the industry’s till towards the beginning of 2016. This clearly shows that the stock is on an uptrend.
We should also point out that International Paper Co. has a forward PE ratio (price relative to this year’s earnings) of just 14.26, so it is fair to say that a slightly more value-oriented path may be ahead for International Paper Co. stock in the near term too.
PS Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, International Paper Co. has a P/S ratio of about 1.00. This is lower than the Zacks categorized Paper & Paper Products industry’s average, which comes in at 1.12 right now.
Notably, IP is actually in the higher zone of its trading range in the time period per the P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.
PEG Ratio
While earnings are certainly important, it is essential to know how much you are paying for the growth of earnings as well. One can easily do that with the PEG ratio (ratio of the P/E to the expected future earnings growth rate).The PEG ratio gives a more complete picture of the valuation of a stock than the P/E ratio.
International Paper Co.’s PEG ratio stands at just 1.25, compared with the Zacks Paper & Paper Products industry average of 1.72. This suggests a decent undervalued trading relative to its earnings growth potential right now.
Broad Value Outlook
In aggregate, International Paper Co. currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes International Paper Co. a solid choice for value investors.
What About the Stock Overall?
Though International Paper Co. might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘C’ and a Momentum score of ‘D’. This gives IP a Zacks VGM score—or its overarching fundamental grade—of ‘C’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been mixed at best. The current quarter has seen no estimate go higher in the past thirty days compared to three lower, while the full year estimate has seen two upward revisions and two downward revisions in the same time period.
This has had a small but meaningful impact on the consensus estimate, as the current quarter consensus estimate has moved south by 6.4% in the past month, while the full year estimate has remained constant. You can see the consensus estimate trend and recent price action for the stock in the chart below:
International Paper Company Price and Consensus
International Paper Company Price and Consensus | International Paper Company Quote
This mixed trend is why the stock has just a Zacks Rank #3 (Hold) despite strong value metrics and why we are looking for in-line performance from the company in the near term.
Bottom Line
International Paper Co. is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (Bottom 29% out of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall.
Notably, over the past two years, the Zacks Paper & Paper Products industry has widely underperformed the broader market, as you can see below:
So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 ""Strong Buy"" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 ""Strong Sells"" and other private research. See these stocks free >>