Let's talk about the popular Packaging Corporation of America (NYSE:PKG). The company's shares saw a significant share price rise of over 20% in the past couple of months on the NYSE. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an 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 the opportunity still exists.
View our latest analysis for Packaging Corporation of America
Is Packaging Corporation of America still cheap?
The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 17.4x is currently trading slightly below its industry peers’ ratio of 19.93x, which means if you buy Packaging Corporation of America today, you’d be paying a reasonable price for it. And if you believe Packaging Corporation of America should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Furthermore, Packaging Corporation of America’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.
What kind of growth will Packaging Corporation of America generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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. Packaging Corporation of America's earnings over the next few years are expected to increase by 30%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? It seems like the market has already priced in PKG’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at PKG? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?