Why A Low P/E Makes Fibria Celulose SA (ADR) (NYSE:FBR) an Interesting Investment for Long Term?
Investors sentiments towards Fibria Celulose SA (ADR) (NYSE:FBR) is gaining momentum considering attractive valuations. The stock currently trades at a P/E of 5.52. The company reported revenues of $2.39 billion which topped estimates by $160 million. One of the primary reasons for fall in share price was earnings disappointment in three out of the last four quarters.
The prospects for Fibria Celulose SA (ADR) (NYSE:FBR) should get better as the company is expected to witness the resumption of demand from the Chinese market for hardwood pulp after recording a drop in both price, as well as, sales volume in the first quarter.
Things have changed after the first quarter. The pulp and paper producer believes that the fundamentals of the hardwood pulp have witnessed substantial improvement driven by demand from the international market and increase in the pricing gap between hardwood and softwood.
The company took advantage of increasing demand and hiked the prices from June 1 and the impact of the price rise could be seen fully from the third quarter. For instance, the company stated that the price difference topped $100 a ton in China between the two types of pulp while it hit $124 a ton in Europe.
While the total pulp in the first five months witnessed 1.9 percent for Fibria Celulose, hardwood pulp sales witnessed 7.4 percent growth in Chinese market alone in the same period. That suggested the importance of China and the impact on the overall financials of the company.
Lower PE Makes It Attractive
In the trailing twelve-month period, the industry average of P/E ratio is 29.7. However, FBR trades only at 5.4 times making it one of the most attractive stocks available currently. On price to book also, the company is at 0.8 times against industry average is 1.1 times.
Aside from these, average revenue growth in the three-year period is significantly higher at 17.8 percent than the industry average of 2.6 percent. Similarly, the company is achieving a net margin of 19.1 percent and operating margin of 32.2 percent. On the other hand, the industry is enjoying a net and operating margin of only 2.1 percent and 5.8 percent respectively.
Lower Debt than Industry
Another key factor in favor of FBR is that its debt/equity ratio of 0.8, slightly lower than the industry average of 0.9. The provided a solid return on assets and equity of 7.1 percent and 14.1 percent in the trailing twelve-month period while the industry delivered 1.6 percent and 4.3 percent respectively.
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