Over the past six months, Sealed Air’s stock price fell to $31.49. Shareholders have lost 11.1% of their capital, which is disappointing considering the S&P 500 has climbed by 4.3%. 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? Get the full breakdown from our expert analysts, it’s free.

Why Do We Think Sealed Air Will Underperform?

Even with the cheaper entry price, we don't have much confidence in Sealed Air. Here are three reasons why there are better opportunities than SEE and a stock we'd rather own.

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 2.2% 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

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Sealed Air’s weak 1.5% 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

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. Unfortunately, Sealed Air’s ROIC has decreased over the last few years. 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. Following the recent decline, the stock trades at 10.4× forward P/E (or $31.49 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are superior stocks to buy right now. We’d suggest looking at one of our top digital advertising picks.

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