Resolute Forest Products: A Low Price-Earnings Stock Showing Strength

This Canadian paper equity is trending up again

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Mar 11, 2022
Summary
  • The price-earnings ratio is very low.
  • The company also has low debt.
  • NYSE-traded.
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Canadian wood and paper products company Resolute Forest Products (RFP, Financial) is trading at just 70% of its book value and has a price-earnings ratio of just 3.63. The price-sales ratio is just about as low as it can get at 0.27, another indication of possible value. The price-to-free-cash-flow ratio is 1.87.

This week, Resolute Forest Products hit a four-week high of $13.89, indicating that it could be on an uptrend. The fact that buyers are coming back to the stock at a time when most equities are selling off suggests strength. This strength would seem to be confirmed by a higher than usual level of volume as higher prices are hit.

The company has been around in one form or another for more than 200 years. With 40 locations in Canada and the United States, Resolute provides paper and wood products to customers throughout the world.

Earnings per share growth over the past five years is 44.20%. Wall Street analysts do not expect that kind of growth to continue at quite that level.

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Shareholder equity greatly exceeds long-term debt, and the current ratio is a solidly positive 2.30.

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In January 2022, the Canadian investment firm CIBC upgraded their rating of Resolute Forest Products from "neutral" to "outperform" with a price target in the $14 to $19 range.

Average daily volume is relatively light with about 640,000 shares traded, despite being listed on the NYSE. The company does not pay a dividend.

Resolute traded lower than $2 per share during the beginning of the Covid-19 pandemic. After peaking at $16 per share in mid-2021, the stock dropped back to $10 by September. So, investors will want to consider the danger of this type of volatility.

Competitors in the paper products field include Mercer International (MERC, Financial), Clearwater Paper (CLW, Financial) and Verso (VRS, Financial), among others.

The GuruFocus summary of financials finds four good signs and one severe warning sign for the stock:

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Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure