Why Olin Corporation Stock Just Jumped 12%

By Rich Smith Markets Fool.com

Let us explain what Olin stock's rise means to you. Image source: Getty Images.

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What happened

It's the day afterearnings for ammunition companyOlin Corporation (NYSE: OLN), and the stock is up 12% as of 1 p.m. EST.

So what

Olin Corp. reported its fourth-quarter and full-year 2016 earnings last night, and it beat by the proverbial penny. Expected to deliver $0.09 per share on $1.36 billion in sales, Olin reported a $0.10 profit and $1.39 billion in revenue.

These profits still weren't enough to put Olin in the black for the year as a whole, however. For the year, Olin reported sales of $5.55 billion and a $0.02-per-share loss.

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Now what

Now, all that being said, even Olin's full-year results weren't as bad as they may appear on the surface. While it's true the company incurred a $3.9 million loss for the year, it generated positive cash flow from operations of $603 million. Minus capital expenditures of $278 million, that left the company with $325 million in cash profits -- free cash flow -- for the year.

But is this good enough to make the stock a buy?

Management did not include guidance for the current year in its earnings report. At a $4.83 billion market capitalization, however, Olin Corp. stock currently sells for nearly 14.9 times trailing free cash flow. Weighed against the company's 3.1% dividend yield and analysts' 8% projected long-term growth rate (11.1% total projected return), 14.9 times free cash flow seems like a steep valuation on the stock. When you factor its $3.4 billion net debt load into the mix, Olin Corp. looks even more overpriced -- and less buyable.

My advice: Yesterday's earnings beat and the improved stock price it has spawned present an excellent opportunity for Olin shareholders to exit the stock and lock in the 61% profit their shares have enjoyed over the past year.

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Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.