Product prices are going up, end markets are growing bigger, and growth plans are in full swing after the painful recession. This is the general scene that's playing out in the chemicals industry now.

Like most players, Eastman Chemical (NYSE: EMN) did well in its last reported quarter, and expects to come up with record annual earnings for the full year. Is now then the best time to go for the stock? Such decisions are best made when we have a broader idea of a company. I am going to drill a little more into Eastman to help Fools make a wise decision on the stock.

Good operational performance
With input costs shooting through the roof, Eastman has been hiking prices like most of its peers. Such higher product prices have nicely supported the growth in global demand for Eastman's products, helping its revenues grow by a strong 35.3% in the last 12 months. This growth looks particularly impressive if you look at the negative compounded rate of 1.9% that Eastman's revenues clocked in the past half-decade.

What's even more impressive is the astounding 95% growth in the company's bottom line in the last year. From a five-year rate of 8.7%, this upward jump deserves applause.

Growing, and looking stable
Eastman has been quite aggressive when it comes to growth. Among its major growth initiatives now are capacity expansion plans in all important segments, most of which are expected to be operational in 2012.

The Tennessee-based company has also not shied away from acquisitions. In August, Eastman acquired a petrochemical producer, which will add additional capacity, as well as a specialty chemical business to strengthen its electronics material product line. It also acquired a Brazil-based plasticizer company to gain traction in the fast-growing markets.

Owing to such heavy investments, Eastman's debt-to-equity ratio remains high at 84%. But I would like to point out that this has come down considerably from 98.6% a year ago, suggesting that the debt burden on the company has been easing. What's even better is that along with falling debt, Eastman's interest coverage ratio has been improving, taking it to a nice current level of 11.2 times.

Value insights
Numbers are good; financial position looks stable. But is the stock looking cheap? Let's take a look.


Trailing P/E

Forward P/E


Eastman Chemical 9.1 8.5 2.72
DuPont (NYSE: DD) 17.0 10.2 3.43
Dow Chemical (NYSE: DOW) 11.6 8.9 1.54
Huntsman (NYSE: HUN) 9.3 5.8 1.14
Celanese (NYSE: CE) 12.3 8.2 4.34

Source: S&P Capital IQ. 

Eastman's lowest trailing P/E shows how cheap the stock is compared to its peers. And things are looking better with a slip in its forward P/E, suggesting an expected growth in its earnings. With the entire industry expected to do well (as suggested by lower forward P/Es), it hints at a good upside potential for Eastman's stock as expected earnings growth haven't really been factored in its price yet. A price-to-book value fairly in line with peers and a good return on equity of 31.9% in spite of high debts makes me quite bullish on the stock. 

The Foolish bottom line 
Eastman is looking good on most fronts. It has also raised its quarterly dividend by 11%, and has declared a stock split that will increase the stock's affordability. With hardly two weeks to go before Eastman declares its third-quarter results, it looks like a good idea to add the stock to your Watchlist. You can do so by clicking here.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.