Problems at Two Paper Products Companies
Technology’s growth is shrinking the need for paper.
You can see the decline of paper in virtual tickets within your digital wallet, paperless statements in your inbox, virtual calendars on your phone, and restaurants where reservations are managed on iPads.
DocuSign is eliminating paper contracts, Kindles and podcasts are reducing the demand for physical books, online learning is supplanting hardcopy textbooks, and office reports no longer need paper copy.
This trend will doubtless continue, only accelerated by increasingly remote work environments. AI is a force multiplier for the digitalization trend — using AI for anything from contract review to digital transcription to task automation makes virtual documentation a necessity.
The Bear Cave believes there are two companies that will suffer most from the ongoing trend of digitalization.
Company A has its roots as a 132-year-old producer of paperclips, now better known for its staplers, notebooks, and physical calendars. It is a forever value trap, with revenue declining in each of the last 11 quarters, its stock consistently falling just enough to appear cheap, and its management hooking investors with new plans to stall the company’s march towards obsolescence.
Company B is one of the largest producers of uncoated freesheet paper, the kind used for printer paper, envelopes, and notepads. This multi-billion-dollar company has no material exposure to growth areas of the paper world, like packaging, and produces limitless paper in an increasingly paperless world.
Both firms are heavily indebted, capital-intensive, and doubling down on shrinking end markets.
Let’s dig in.