One FTSE 100 stock that I currently like the look of is Mondi (LSE: MNDI). Let’s take a closer look at it to help me decide if it is one to add to my holdings or not.
Paper and packaging
As an introduction, Mondi is an international packaging and paper business. In simple terms, it provides effective and sustainable packaging and paper solutions to businesses that require them.
So what’s happening with Mondi shares currently? Well, as I write, they’re trading for 1,322. At this time last year, they were trading for 1,437p, which is an 8% drop over a 12-month period.
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It is worth noting that many FTSE 100 stocks have fallen recently due to market volatility caused by soaring inflation and a cost of living crisis.
Pros and cons to consider
Starting from a bullish perspective, I believe Mondi is in an excellent position to capitalise on changing shopping habits. Online shopping has exploded in recent years and I would even argue it has become the new norm. The pandemic exacerbated this too as lockdowns caused many of us to turn to online channels to procure both our everyday and non-essential items. More companies now sell online, compared to years gone by, and therefore require packaging solutions to send their products to consumers. This boom could translate into performance growth and increased shareholder returns.
Moving on to returns, Mondi currently possesses a dividend yield of 4.7%. This is higher than the FTSE 100 average of 3%-4%. It is worth remembering that dividends are never guaranteed. They can be cancelled at the discretion of the business at any time.
Next, I can see that Mondi has a good track record of past performance. It has increased revenue in three of its past four fiscal years. In addition to this, it has seen profits grow in the past two years. I do understand that past performance is not an indicator of the future.
Finally, I believe Mondi shares are currently cheap. At present, they’re trading on a price-to-earnings ratio of just five.
From a bearish perspective, Mondi is at the mercy of any economic downturn. Demand for its products is cyclical. In times of economic uncertainty, like now, there may be less spending on non-essential items so companies may not require as much packaging and paper solutions. This could hurt performance and returns.
Finally, Mondi could be adversely impacted by soaring prices of wood. This is a key component in its packaging. The higher cost for raw materials could impact its profitability and investor returns.
A FTSE 100 stock I would buy
To summarise, I believe Mondi is an excellent value stock, trading cheaply, and offering a good passive income opportunity. There are external factors that could impact returns but overall I’m not worried about them due to its excellent standing, position in its respective market, and the general overall demand for its products.
I would buy Mondi shares for my holdings if I had the spare cash to do so.
