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Editorial Advisory Board

  • Professor Andrea M. Armani, University of Southern California
  • Ruti Ben-Shlomi, Ph.D., LightSolver
  • James Butler, Ph.D., Hamamatsu
  • Natalie Fardian-Melamed, Ph.D., Columbia University
  • Justin Sigley, Ph.D., AmeriCOM
  • Professor Birgit Stiller, Max Planck Institute for the Science of Light, and Leibniz University of Hannover
  • Professor Stephen Sweeney, University of Glasgow
  • Mohan Wang, Ph.D., University of Oxford
  • Professor Xuchen Wang, Harbin Engineering University
  • Professor Stefan Witte, Delft University of Technology

3 Reasons PKG is Risky and 1 Stock to Buy Instead

PKG Cover Image

Although the S&P 500 is down 1.7% over the past six months, Packaging Corporation of America’s stock price has fallen further to $196.44, losing shareholders 8.8% of their capital. This might have investors contemplating their next move.

Is there a buying opportunity in Packaging Corporation of America, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Despite the more favorable entry price, we're swiping left on Packaging Corporation of America for now. Here are three reasons why PKG doesn't excite us and a stock we'd rather own.

Why Do We Think Packaging Corporation of America Will Underperform?

Founded in 1959, Packaging Corporation of America (NYSE: PKG) produces containerboard and corrugated packaging products as well as displays and package protection.

1. Weak Sales Volumes Indicate Waning Demand

Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful Industrial Packaging company because there’s a ceiling to what customers will pay.

Packaging Corporation of America’s units sold came in at 1.31 million in the latest quarter, and over the last two years, averaged 6.1% year-on-year growth. This performance slightly lagged the sector and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability. Packaging Corporation of America Units Sold

2. EPS Barely Growing

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Packaging Corporation of America’s unimpressive 4% annual EPS growth over the last five years aligns with its revenue performance. On the bright side, this tells us its incremental sales were profitable.

Packaging Corporation of America Trailing 12-Month EPS (GAAP)

3. Free Cash Flow Margin Dropping

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

As you can see below, Packaging Corporation of America’s margin dropped by 3 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Packaging Corporation of America’s free cash flow margin for the trailing 12 months was 6.2%.

Packaging Corporation of America Trailing 12-Month Free Cash Flow Margin

Final Judgment

Packaging Corporation of America doesn’t pass our quality test. Following the recent decline, the stock trades at 17.4× forward price-to-earnings (or $196.44 per share). This multiple tells us a lot of good news is priced in - we think there are better investment opportunities out there. Let us point you toward one of our top digital advertising picks.

Stocks We Would Buy Instead of Packaging Corporation of America

The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.

Take advantage of the rebound by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.

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