What a fantastic six months it’s been for Sealed Air. Shares of the company have skyrocketed 44.5%, hitting $41.87. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy Sealed Air, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think Sealed Air Will Underperform?
Despite the momentum, we're cautious about Sealed Air. Here are three reasons we avoid SEE and a stock we'd rather own.
1. Sales Volumes Stall, Demand Waning
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 failed to grow its units sold. 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 accelerate growth, 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 Sealed Air’s revenue to stall. While this projection suggests its newer products and services will spur better top-line performance, it is still below the sector average.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative 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
We cheer for all companies making their customers lives easier, but in the case of Sealed Air, we’ll be cheering from the sidelines. After the recent rally, the stock trades at 12.9× forward P/E (or $41.87 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are more exciting stocks to buy at the moment. Let us point you toward the Amazon and PayPal of Latin America.
Stocks We Would Buy Instead of Sealed Air
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