Why Packaging Corporation of America (NYSE:PKG) Could Be Worth Watching

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$146 at one point, and dropping to the lows of US$112. 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$114 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.

Check out our latest analysis for Packaging Corporation of America

Is Packaging Corporation of America Still Cheap?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Packaging Corporation of America’s ratio of 10.43x is trading slightly below its industry peers’ ratio of 12.45x, which means if you buy Packaging Corporation of America today, you’d be paying a reasonable price for it. And if you believe that Packaging Corporation of America should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Furthermore, it seems like Packaging Corporation of America’s share price is quite stable, which means there may be less chances to buy low in the future now that it’s priced similarly to industry peers. This is because the stock is less volatile than the wider market given its low beta.

Can we expect growth from Packaging Corporation of America?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. However, with a negative profit growth of -0.02% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Packaging Corporation of America. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? Currently, PKG appears to be trading around industry price multiples, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on PKG, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on PKG for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystallize your views on PKG should the price fluctuate below the industry PE ratio.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For example, Packaging Corporation of America has 2 warning signs (and 1 which is potentially serious) we think you should know about.

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.