With a recent daily gain of 2.3% and a 3-month gain of 9.57%, Packaging of America (PKG, Financial) has shown notable market performance. Investors and analysts often scrutinize such figures, alongside an Earnings Per Share (EPS) of 8.69, to determine if a stock is fairly valued. This article delves into the valuation analysis of Packaging Corp of America (PKG), aiming to provide a clear answer to this investment query.
Company Introduction
Packaging Corp of America, the third-largest containerboard and corrugated packaging manufacturer in the United States, claims a significant 10% share of the domestic containerboard market. The company stands out by focusing on smaller customers and maintaining a high degree of operational flexibility. Currently, with a stock price of $158.7 and a market cap of $14.20 billion, the key question is whether Packaging of America (PKG, Financial) aligns with its estimated fair value, which is crucial for investors seeking to capitalize on market opportunities.
Summarize GF Value
The GF Value is a unique metric that calculates the intrinsic value of a stock by considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, as well as future business performance estimates. This proprietary measure suggests an ideal fair trading value for a stock, represented by the GF Value Line on our summary page. When a stock's price significantly deviates from the GF Value Line, it may indicate overvaluation or undervaluation, influencing potential future returns.
At its current price of $158.7, Packaging of America (PKG, Financial) exhibits signs of being fairly valued. The GF Value, GuruFocus' estimate of the fair market value, suggests that the stock should trade close to this figure. This assessment is based on historical trading multiples, past business growth, and future business performance projections. Thus, the long-term return of Packaging of America's stock is likely to mirror the rate of its business growth.
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Financial Strength
Evaluating a company's financial strength is crucial before investing in its stock. Companies with weak financial health pose a greater risk of permanent capital loss. Key indicators such as the cash-to-debt ratio and interest coverage can shed light on a company's financial robustness. Packaging of America's cash-to-debt ratio stands at 0.24, which is below the industry median, placing it in the weaker half of its peers. However, with an overall financial strength rating of 7 out of 10, Packaging of America's financial situation is considered fair.
Profitability and Growth
Investing in profitable companies, particularly those with a history of consistent profitability, is generally less risky. Packaging of America has been profitable for the past decade, with a strong operating margin of 14.73%, ranking well above the majority of its industry peers. The company's Earnings Per Share (EPS) of $8.69 and revenue of $7.80 billion over the past twelve months further attest to its solid profitability, which GuruFocus ranks at 8 out of 10.
In terms of growth, Packaging of America's 3-year average annual revenue growth rate stands at 7.3%, outperforming over half of the companies in its industry. The 3-year average EBITDA growth rate of 10.2% is also notable, indicating the company's ability to create value for shareholders through profitable expansion.
ROIC vs WACC
The comparison between a company's Return on Invested Capital (ROIC) and its Weighted Average Cost of Capital (WACC) provides insight into its profitability relative to the capital invested. Ideally, ROIC should exceed WACC to indicate efficient capital utilization. Packaging of America's ROIC over the past 12 months is an impressive 12.59, surpassing its WACC of 8.46.
Conclusion
In summary, the stock of Packaging of America (PKG, Financial) appears to be fairly valued. The company's financial condition is sound, and its profitability is robust. Its growth is commendable, ranking favorably within the Packaging & Containers industry. For a more detailed look into Packaging of America's financials, you can explore its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
