Is It Time To Consider Buying Packaging Corporation of America (NYSE:PKG)?

Today we're going to take a look at the well-established Packaging Corporation of America (NYSE:PKG). The company's stock received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$249 at one point, and dropping to the lows of US$213. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Packaging Corporation of America's current trading price of US$228 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Packaging Corporation of America’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Packaging Corporation of America

What Is Packaging Corporation of America Worth?

Packaging Corporation of America appears to be expensive according to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average. We’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 26.49x is currently well-above the industry average of 21.34x, meaning that it is trading at a more expensive price relative to its peers. Furthermore, Packaging Corporation of America’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. If you believe the share price should eventually reach levels around its industry peers, a low beta could suggest it is unlikely to rapidly do so anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range.

Can we expect growth from Packaging Corporation of America?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Packaging Corporation of America's earnings over the next few years are expected to increase by 51%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? PKG’s optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe PKG should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on PKG for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for PKG, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

If you want to dive deeper into Packaging Corporation of America, you'd also look into what risks it is currently facing. You'd be interested to know, that we found 1 warning sign for Packaging Corporation of America and you'll want to know about this.

If you are no longer interested in Packaging Corporation of America, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.