I’m looking for a second opinion on Intertape Polymer Group Inc. (ITP:TSE).

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I bought it back several months ago (averaged in at ~$15) on the recommendation of a friend. It has done well building upto approximately $23.

I purchased it mostly as a dividend play, and it is being held in a TFSA.

The friend who originally recommended it (and still does) is a much more aggressive investor than I am.

Does it make sense buying in again at these levels?

Thanks for your time!

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Asked on December 1, 2020 8:49 am
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Private answer

Good call at the $15 range! Solid earnings caused this company to soar recently. In fact, "solid" is an understatement. They simply crushed the third quarter.

If you purchased it for a dividend play, it seems like your thesis is well in tact. The company pays out a healthy dividend, and one that is well covered by earnings and cash flows. Intertape ranks somewhat in the middle of the pack in terms of our dividend safety screener, but the primary reason for this is a lack of dividend growth. It only has a 1 year dividend growth streak and a mid single digit dividend growth rate.

Payout ratios are in the high 40% range in terms of earnings and high 20% range in terms of cash flows. I'm not sure if you've looked at them on our dividend screener. If not, head to it on the left hand menu and search for ITP.

But, you're probably primarily wondering if you should add more based on valuation. And interestingly enough, even though the runup on ITP has been substantial, it is still trading at a 18% discount to what it typically trades at in terms of forward price to earnings, and is trading right in line with its average price to sales.

So although fears may be that the company is too expensive due to a short term run up, the fact was it was undervalued prior.

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Posted by Dan Kent
Answered on December 1, 2020 9:51 am