A Good Business Trading at a Good Valuation

Intertape Polymer Group (TSX:ITP) offers a 3.8% yield to help boost returns.

| More on:
packaging tape

Intertape Polymer Group (TSX:ITP) stock is about 25% lower than its 52-week high. It may be a good time to pick up some shares on this meaningful pullback.

Here’s an overview of its business.

The business

Intertape operates in the specialty packaging industry. It develops, manufactures, and sells a variety of paper and film-based pressure-sensitive and water-activated tapes, specialized films, and woven coated fabrics for industrial and retail use.

With its core market in North America, Intertape has 13 manufacturing facilities in North America and one each in Europe and Asia. Last year, it generated revenue of ~US$898 million and net income of nearly US$64 million, achieving a net margin of ~7.1%.

packaged boxes

Recent results

Intertape released its first-quarter results last week. Its revenue increased 14.5% to US$237.2 million primarily due to the Cantech acquisition and an increase in average selling price. Its gross margin decreased 2.4% to 21.3%. However, excluding the impact of a non-recurring expense, it would have only decreased 1%.

The company’s adjusted earnings before interest, taxes, depreciation, and amortization were essentially flat. They would have increased 7% if not for the impact of the non-recurring item.

Profitability

Intertape’s return on asset (ROA) and return on equity (ROE) have been +5% and +15%, respectively, since 2012. For the trailing 12 months, its ROA and ROE were +9% and +25%, respectively. So, management has been investing in the right places.

Dividend

Intertape offers a 3.8% yield. Its payout ratio is estimated to be ~50% this year. So, its dividend is intact. Investors should note that the company pays a U.S. dollar-denominated dividend, which will fluctuate with the strength of the U.S. dollar against the Canadian dollar. However, its dividends are still designated as eligible dividends for favourable taxation (compared to your job’s income).

Valuation and returns potential

At ~$18.75 per share, Intertape trades at a P/E of ~13.3, while the company is estimated to grow its earnings per share by +7% on average through 2019. At Thomson Reuters Corp., the 12-month consensus target on Intertape is US$19.70 per share, which represents ~39% near-term upside potential.

Additionally, Intertape has long-term double-digit growth potential. So, an investment in Intertape today can deliver some nice price appreciation in the next few years while offering a ~3.8% yield.

Investor takeaway

Intertape is a good business trading at a good valuation. Instead of thinking that it’ll deliver ~39% upside in the next 12 months, it’s more conservative to think that it can deliver an annualized rate of return of ~13% over the next three years, assuming ~9.5% upside potential each year and a ~3.8% dividend yield.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng has no position in any of the stocks mentioned.

More on Dividend Stocks

data analyze research
Dividend Stocks

Outlook for BCE Stock in 2025

If BCE successfully turns around, over the next few years, new investors could pocket some nice income and capital gains.

Read more »

cloud computing
Dividend Stocks

Safe Stocks to Buy in Canada for December

Given their solid underlying businesses and healthy growth prospects, these three safe stocks are excellent buys this month.

Read more »

View of high rise corporate buildings in the financial district of Toronto, Canada
Dividend Stocks

Top Real Estate Sector Stocks for 2025

Top Canadian real estate stocks: Why beaten-down office REITs could be 2025's hidden real estate gems

Read more »

coins jump into piggy bank
Dividend Stocks

10 Years From Now, You’ll Be Glad You Bought These Magnificent TSX Dividend Stocks 

High-yielding dividend stocks can give you more passive income now, but high-dividend-growth stocks can give you more passive income later.

Read more »

Canada Day fireworks over two Adirondack chairs on the wooden dock in Ontario, Canada
Dividend Stocks

Brace Yourself: My Wildest Stock Market Predictions for 2025

I predict that the Toronto-Dominion Bank (TSX:TD) will outperform other large banks next year.

Read more »

man shops in a drugstore
Dividend Stocks

3 Reasons to Buy Dollarama Stock Like There’s No Tomorrow

Dollarama stock continues to rise higher and higher, and it doesn't look like it's going to be any different in…

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

3 Secrets of TFSA Millionaires

Don't miss out on these secret yet somewhat obvious strategies to making sure you make the most of your TFSA…

Read more »

Investor reading the newspaper
Dividend Stocks

3 Trump Trade Changes and What They Could Mean for Canadian Investors

Trump's preference for fewer banking regulations would benefit Toronto-Dominion Bank (TSX:TD).

Read more »