Shareholders of Graphic Packaging Holding would probably like to forget the past six months even happened. The stock dropped 30.4% and now trades at $15.15. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Graphic Packaging Holding, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free for active Edge members.
Why Do We Think Graphic Packaging Holding Will Underperform?
Even with the cheaper entry price, we're sitting this one out for now. Here are three reasons why GPK doesn't excite us and a stock we'd rather own.
1. Demand Slips as Sales Volumes Slide
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, Graphic Packaging Holding’s units sold averaged 2.8% year-on-year declines. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests Graphic Packaging Holding might have to lower prices or invest in product improvements to grow, factors that can hinder near-term profitability.
2. Projected Revenue Growth Shows Limited Upside
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Graphic Packaging Holding’s revenue to stall. While this projection implies its newer products and services will spur better top-line performance, it is still below average for the sector.
3. EPS Took a Dip Over the Last Two Years
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
Sadly for Graphic Packaging Holding, its EPS declined by more than its revenue over the last two years, dropping 12.8%. This tells us the company struggled to adjust to shrinking demand.
Final Judgment
Graphic Packaging Holding falls short of our quality standards. After the recent drawdown, the stock trades at 8.3× forward P/E (or $15.15 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 dominant Aerospace business that has perfected its M&A strategy.
Stocks We Would Buy Instead of Graphic Packaging Holding
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