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  1. Home
  2. / Investing
  3. / Stocks

This Stock Is Up 600% in 2021 -- And It's Still Cheap

You can find investment ideas in the strangest places.
By JIM COLLINS
Nov 19, 2021 | 11:30 AM EST
Stocks quotes in this article: VRTV, IP

Sometimes I find investment ideas in the strangest of places. Even Yahoo Finance.

This morning, while researching some energy ideas, I was somehow directed to a Yahoo FInance interview with the CEO of Veritiv (VRTV) , Sal Abbate. Despite listing an incorrect ticker (Veritiv is VRTV, not VRT) and having to scroll down past an embedded ad attempting to get me to click-through to a story that stated Nick Cannon is one of the richest heirs on the world (this can't possibly be true, although I did enjoy his performanceein Drumline) I decided to read the piece and do the work on Veritiv.

First step in my process is -- as it should be for everyone -- to look at the stock chart. In the case of VRTV, that image almost melted my laptop screen. Veritiv shares have risen a mere 592.6% in 2021. Not a typo. So, what is Veritiv? Formed in 2014 after a spin-out from International Paper (IP) , Veritiv is, as described on its website:

a full-service provider of packaging, JanSan and hygiene products, services and solutions. Additionally, Veritiv provides print and publishing products, and logistics and supply chain management solutions.

Wow! I don't see any references to electric cars anywhere in that passage. Ha! Seriously, though, I thought Abbate made three salient points in the Yahoo article, well-written despite the errors I mentioned earlier.

  1. Unprecedented demand. Abbate noted record demand across VRTV's businesses from packaging to its print business, which he noted had been in secular decline.
  2. Raw material shortages. Abbate noted escalating prices in resin-based products, especially corrugated paper.
  3. Labor shortages. Abbate alluded to a "war on talent" and noted that Veritiv is now offering sign-on bonuses and raising the ante on employee compensation in general.

So, that was a helpful interview, but I like to run the numbers myself.

VRTV's third-quarter results, released on Nov. 3, reflected a hotness in growth that I thought would make my Internet filter block the page as I tried to load the results.

Veritiv sales rose 11.1% year-on year in Q3 and the bottom line greatly benefited, characteristic of a business that has substantial fixed costs and uses conservative accounting. So, on that 11% sales growth, adjusted EBITDA rose 81.8% YoY to $93.7 million, and net income rose a cool 89.6% and diluted EPS rose at an even faster pace, 95.3% YoY, as VRTV had been buying back shares before the recent massive jump in VRTV share price. Also, crucially, VRTV management raised guidance for EPS, free cash flow and adjusted EBITDA for 2021.

These numbers are characteristic of a company that is in the midst of stratospheric growth. Yes, in a typical, industrial business like paper and packaging, 11.1% top-line growth IS stratospheric, and the bottom-line expansion shows the massive operating leverage that Veritiv has.

So, the question is: do you still buy it after a 600% move in a year? Or should an investor simply throw up her hands and say "darn it...missed that one."

Well, based on trailing figures, VRTV's $2.1 billion current market cap represents less than 0.5x trailing 12-months sales. and would be much less, closer to 0.25x sales, if one simply annualized the third quarter's sales rate of $1.787 billion. Also, at Thursday's closing price of $143.56 and the midpoint of management's guidance range of $8.00-$9.00 for EPS in 2021, VRTV trades at 16.9x this year's earnings. Take a look at Nasdaq names if you think that is expensive. It's not.

So, a stock that has risen 600% in a year can still be considered cheap. As I always say, it's a great big world out there. Just be careful you aren't missing great investment ideas that are right under your nose.

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At the time of publication, Collins had no positions in any securities mentioned.

TAGS: Fundamental Analysis | Investing | Markets | Stocks | Trading | Value Investing | U.S. Equity

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