Over the past six months, Silgan Holdings’s stock price fell to $42.19. Shareholders have lost 15.6% of their capital, which is disappointing considering the S&P 500 has climbed by 14.9%. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy Silgan Holdings, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Do We Think Silgan Holdings Will Underperform?
Even though the stock has become cheaper, we're swiping left on Silgan Holdings for now. Here are three reasons there are better opportunities than SLGN and a stock we'd rather own.
1. Core Business Falling Behind as Demand Declines
In addition to reported revenue, organic revenue is a useful data point for analyzing Industrial Packaging companies. This metric gives visibility into Silgan Holdings’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.
Over the last two years, Silgan Holdings’s organic revenue averaged 3.3% year-on-year declines. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Silgan Holdings might have to lean into acquisitions to grow, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus). 
2. Low Gross Margin Reveals Weak Structural Profitability
All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products and commands stronger pricing power.
Silgan Holdings has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 16.9% gross margin over the last five years. Said differently, Silgan Holdings had to pay a chunky $83.14 to its suppliers for every $100 in revenue. 
3. Mediocre Free Cash Flow Margin Limits Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Silgan Holdings has shown poor cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.5%, lousy for an industrials business.
Final Judgment
Silgan Holdings doesn’t pass our quality test. Following the recent decline, the stock trades at 9.9× forward P/E (or $42.19 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere. Let us point you toward a top digital advertising platform riding the creator economy.
Stocks We Like More Than Silgan Holdings
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