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Over the past six months, Sealed Air’s stock price fell to $29.16. Shareholders have lost 18.1% of their capital, disappointing when considering the S&P 500 was flat. This may have investors wondering how to approach the situation.
Is now the time to buy Sealed Air, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Even though the stock has become cheaper, we're cautious about Sealed Air. Here are three reasons why there are better opportunities than SEE and a stock we'd rather own.
Why Do We Think Sealed Air Will Underperform?
Founded in 1960, Sealed Air Corporation (NYSE: SEE) specializes in the development and production of protective and food packaging solutions, serving a variety of industries.
1. Demand Slipping as Sales Volumes Decline
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.
Over the last two years, Sealed Air’s units sold averaged 3.1% year-on-year declines. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests Sealed Air might have to lower prices or invest in product improvements to grow, 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.
Sealed Air’s weak 2.3% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability 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).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Sealed Air’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
Sealed Air doesn’t pass our quality test. After the recent drawdown, the stock trades at 9.3× forward price-to-earnings (or $29.16 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better stocks to buy right now. Let us point you toward a top digital advertising platform riding the creator economy.