The Dirty Secret to Trading Finisar Corporation (FNSR), International Paper Company (IP)

Shares of Finisar Corporation (NASDAQ:FNSR) observed rebound of 6.45% since bottoming out on Dec. 06, 2017. Meanwhile, due to an ongoing pressure which caused a decline of almost -6.15% in the past five days, the stock price is now down -10.02% so far on the year — still in weak territory. In this case, shares are down -49.71% , the 52-week high touched on Feb. 14, 2017, but are collecting gains at -37.64% for the past 12 months.

Brokerage houses, on average, are recommending investors to buy Finisar Corporation (FNSR)’s shares projecting a $25.13 target price. Analysts‟ target price forecasts are a prediction of a stock‟s future price, generally over the 12 months following the release date (Asquith et al., 2005). This forecast is a point estimate that provides investors with a benchmark against which to directly compare stock price in the short run.Target prices made by analysts employed by large brokers, who have access to a greater resource pool, are more likely to be met over the 12-month forecast period.

FNSR’s revenue has grown at an average annualized rate of about 8.8% during the past five years. However, the company’s most recent quarter decrease of -10.2% looks unattractive. The sales growth rate for a stock is a measure of how the stock’s sales per share (SPS) has grown over a specific period of time. It tells an investor how quickly a company is increasing its revenues. The sales growth rate helps investors determine how strong the overall growth-orientation is for a stock or portfolio.

The best measure of a company is its profitability, for without it, it cannot grow, and if it doesn’t grow, then its stock will trend downward. Increasing profits are the best indication that a company can pay dividends and that the share price will trend upward. Creditors will loan money at a cheaper rate to a profitable company than to an unprofitable one; consequently, profitable companies can use leverage to increase stockholders’ equity even more. Profitability ratios compare different accounts to see how efficiently a business is generating profits. These ratios show how well income is generated through operations, and are important to both creditors and investors. They help determine the company’s ability to continue operating. Currently, Finisar Corporation net profit margin for the 12 months is at 16.92%. Comparatively, the peers have a net margin 4.36%, and the sector’s average is 11.7%. In that light, it seems in good position compared to its peers and sector. The profit margin measures the amount of net income earned with each dollar’s worth of revenue. It shows the percentage of sales that remain after all of the company’s expenses have been paid. The higher the ratio, the better.

International Paper Company (NYSE:IP) is another stock that is grabbing investors attention these days. Its shares have trimmed -4.09% since hitting a peak level on Jan. 29, 2018. Thanks to an increase of almost 11.02% in the past one month, the stock price is now outperforming with 10.8% so far on the year — still in strong zone. In this case, shares are 29.44% higher, the worst price in 52 weeks suffered on Apr. 12, 2017, and are keeping their losses at 16.77% for the past six months.

The good news is there’s still room for International Paper Company (IP) to grow. At recent closing price of $64.2, IP has a chance to add $2.16 or 3.36% in 52 weeks, based on mean target price ($66.36) placed by analysts.The analyst consensus opinion of 2.1 looks like a hold. It has a 36-month beta of 1.49 , so you might be in for a bumpy ride.

For the past 5 years, International Paper Company’s EPS growth has been nearly -5.6%. Sure, the percentage is discouraging but better times are ahead as looking out over a next 5-year period, analysts expect the company to see its earnings go up by 12.02%, annually.

International Paper Company (IP)’s ROE is 19.12%, while industry’s is 12.19%. The average ROE for the sector stands at 14.01%. The return on equity (ROE), also known as return on investment (ROI), is the best measure of the return, since it is the product of the operating performance, asset turnover, and debt-equity management of the firm. If a firm can borrow money and use it to achieve a higher return than the cost of the debt, then the leveraging creates additional revenue that accrues to stockholders as increased equity.

International Paper Company’s ROA is 2.02%, while industry’s average is 5.24%. As with any return, the higher this number the better. However, it, too, needs to be taken into the context of a company’s peer group as well as its sector. The average return on assets for companies in the same sector is 8.4. The return on assets (ROA) (aka return on total assets, return on average assets), is one of the most widely used profitability ratios because it is related to both profit margin and asset turnover, and shows the rate of return for both creditors and investors of the company. ROA shows how well a company controls its costs and utilizes its resources.