Packaging Corporation of America trades at $231.62 and has moved in lockstep with the market. Its shares have returned 10.3% over the last six months while the S&P 500 has gained 12%.
Is there a buying opportunity in Packaging Corporation of America, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Packaging Corporation of America Not Exciting?
We don’t have much confidence in Packaging Corporation of America. Here are three reasons you should be careful with PKG, plus one stock we’d rather own.
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 1.42 million in the latest quarter, and over the last two years, averaged 5.9% year-on-year growth. This performance was underwhelming and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability. 
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 EPS grew at a weak 2.9% compounded annual growth rate over the last five years, lower than its 6.1% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
3. New Investments Fail to Bear Fruit as ROIC Declines
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).
Over the last few years, Packaging Corporation of America’s ROIC has unfortunately decreased. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
Packaging Corporation of America’s business quality ultimately falls short of our standards. That said, the stock currently trades at 19.3× forward P/E (or $231.62 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We’re fairly confident there are better stocks to buy right now. Let us point you toward a top digital advertising platform riding the creator economy.
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