When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 19x, you may consider Sealed Air Corporation (NYSE:SEE) as an attractive investment with its 12.5x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.
Sealed Air certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Check out our latest analysis for Sealed Air
Does Growth Match The Low P/E?
The only time you'd be truly comfortable seeing a P/E as low as Sealed Air's is when the company's growth is on track to lag the market.
Taking a look back first, we see that the company grew earnings per share by an impressive 27% last year. Still, incredibly EPS has fallen 10.0% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.
Turning to the outlook, the next three years should generate growth of 9.2% per year as estimated by the analysts watching the company. With the market predicted to deliver 11% growth each year, the company is positioned for a comparable earnings result.
With this information, we find it odd that Sealed Air is trading at a P/E lower than the market. It may be that most investors are not convinced the company can achieve future growth expectations.
What We Can Learn From Sealed Air's P/E?
Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
Our examination of Sealed Air's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.
Before you settle on your opinion, we've discovered 1 warning sign for Sealed Air that you should be aware of.
You might be able to find a better investment than Sealed Air. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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.
About NYSE:SEE
Sealed Air
Provides packaging solutions in the Americas, Europe, the Middle East, Africa, Asia, Australia, and New Zealand.
Very undervalued established dividend payer.
