Over the last six months, International Paper’s shares have sunk to $34.16, producing a disappointing 8.7% loss - a stark contrast to the S&P 500’s 12.9% gain. This may have investors wondering how to approach the situation.
Is now the time to buy International Paper, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Do We Think International Paper Will Underperform?
Despite the more favorable entry price, we’re passing on International Paper for now. Here are three reasons why there are better opportunities than IP, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, International Paper’s 2.5% annualized revenue growth over the last five years was sluggish. This was below our standards.
2. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for International Paper, its EPS declined by 16% annually over the last five years while its revenue grew by 2.5%. This tells us the company became less profitable on a per-share basis as it expanded.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Over the last few years, International Paper’s ROIC has unfortunately decreased. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
We cheer for all companies making their customers lives easier, but in the case of International Paper, we’ll be cheering from the sidelines. After the recent drawdown, the stock trades at 14.7× forward P/E (or $34.16 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are more exciting stocks to buy at the moment. We’d suggest looking at the most dominant software business in the world.
Stocks We Would Buy Instead of International Paper
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