Why are Orchids Paper Products Share Price Collapsing?

Orchids Paper Products

Orchids Paper Products Company (NYSE:TIS) is among the biggest losers since the start of this year. TIS share price plunged close to 70% year to date to the new 52-week low of $3.44 a share. The stock has a 52-week trading range of $3.44 – $15.74 per share.

Orchids Paper Products

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The selloff was supported by sluggish trading volume and lower than expected results in the past two quarters. Widening losses are among the factors for the potential crash in its share price. Traders and analysts have also been showing concerns over the huge amount of its debt level combined with negative free cash flows.

Increasing Losses Impacted Sentiments

Although the company has reported robust revenue growth of 36% in the latest quarter, its earnings still stood in the negative territory. Its loss was at $0.21 per share in the first quarter of this year, which was higher from the loss of $0.08 per share this time last year.

The company blamed SG&A expenses for higher than expected loss in the first quarter. Its SG&A expense increased by $1 million from this time last year. The company says higher expenses associated with its new Barnwell, SC facility impacted its earnings potential.

Higher Debt and Negative Cash Flows isn’t a Good Sign

The company has invested a tremendous amount of cash in growth opportunities to expand its revenue base in the last couple of years. Although its growth strategy has been helping to generate high double-digit revenue growth, negative earnings and higher debt level created a liquidity risk. The company’s dividend payments are also at risk because cash flows are not providing a complete cover to cash returns.

Orchids Paper Products’ cash flow from operating activities stood around negative $2.5 million while cash balance reduced to $2.9 million from $8 million a year ago. In response to these issues the management said, “We engaged Guggenheim Securities LLC as a financial advisor to, among other things, explore strategic and financial alternatives for the Company, including exploring possibilities for the Company to repay its existing credit facilities.”

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