Supremex (Ticker: SXP, Stock Exchange: TSX) is a Canadian paper product company headed out of Quebec. I purchased some shares back in September on the TSX when they were $1.30 each, and they have since grown to $1.85. While I don’t know if we are going to see SXP up or down in the coming weeks, I am optimistic about its long term prospects. And apparently I am not the only one. Thomson Reuters rates SXP a 10/10, its top rating for stocks.
Supremex is historically an envelope manufacturer. It manufactures a wide variety of envelopes. More exciting than this is its growing packaging division. This division manufactures packaging for many purposes, among which is e-commerce. One of the packages that showed up to your door for Christmas? Yeah, that might have been made by SXP. In my mind, this presents a massive opportunity. You don’t need me to tell you that e-commerce is growing fast. If Supremex can make the packaging for even a fraction of Canadian e-commerce deliveries, this would be fantastically profitable. Luckily for investors, it looks like it is capturing a growing share of this market. SXP’s packaging EBITDA grew from $600,000 to $2,900,000 from Q3-2019 to Q3-2020.
Something else to notice about this stock is it’s low P/E Ratio of 5.5x. This is hard to compare to it’s industry peers because some of them are not even turning a profit! A P/E of 5.5 is certainly a good value. Unfortunately, SXP’s Net Earnings, which is what P/E is based on, have been trending down the last 5 years (2015-2019). Fortunately, this trends looks like it will reverse for Fiscal 2020. Supremex’s book value is $2.72, which gives it a current Price/Book equal to .68. Again, this is strong indicator of value. Consider, however, that the paper products industry has a fairly low P/E overall.
Now, is Supremex the next great gift to mankind? Is it infallible? No. There is always a chance that we will see it trade lower. Just like investing in any company there are risks, and I suggest you conduct independent research. For my money though, this company looks well positioned and low-priced. In terms of an entry point, perhaps sometime in the next couple of months we will see it trading around $1.50 or so. Like I said, I’ve put my money where my mouth is at $1.30 and I plan on holding at least some shares until we reach well above the $2 range.
