Orchids Paper Products Co. (NYSE AMEX:TIS)

New Geo feature: The GeoTeam® does not limit its research to just Asia, thus we will also be including some commentary on stocks based in the United States.

Understanding TIS:

The company has two main product lines:

• The production of Bulk Tissue (parent rolls):  These products are sold to customers who then convert the rolls into finished products such as tissue paper. 

• The conversion on Bulk Tissue into finished products (paper towels, bathroom tissue and paper napkins).

Margins should improve going forward because:

• The company is focusing on selling all of its parent roll capacity as converted products which have higher margins than parent rolls.

• The company recently improved its conversion process by identifying and addressing the root issues that impair production. As a result of these efforts, conversion productivity from the beginning of September through mid-October improved approximately 20% compared with the run rate experienced in the first eight months of 2008.

• The company can manufacture 100% of its paper roll needs due to the purchase of a new paper machine in 2006.  Previously, the company had to purchase some of its paper roll inventory from the open market.

TIS is  recession resistant

TIS manufactures tissue paper products for private label markets.  The company might be able to benefit in a soft economy as consumers opt to buy cheaper private label brand products. The company sells its products to a wide variety of customers in addition to recession resistant discount retailers such as Walmart .

The following statement from the most recent SEC Annual Fling suggests the recession resistant nature of their business:

"Changes in the national economy, in general, do not materially affect the market for our products."

Strong Commentary

Comments in the recent third quarter report were very bullish:

'The current economic and credit crisis has had profound effects on many industries, however our current order backlog remains strong and we expect that situation to continue. While world-wide virgin pulp prices have seen significant decreases in recent months, the grades of waste paper we use to produce paper have not experienced price decreases to date.'

The company is fully taxed.  They have shown impressive EPS growth rates  in 2007 and 2008. They have had only two down quarters in the past 8 quarters.  Analyst estimates show 2009 EPS growing 84% to $1.40, assuming the company meets 2008 estimates.

TIS is selling at only a 5 P/E on the 2009 earning estimate of $1.40 and a current PEG Ratio of .035. The GeoTeam will interview ASAP, keeping in mind that this industry tends to have a low P/E.

Initiating a position