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Is the Amcor share price in the buy zone?

The broad market sell-off will provide investors with some great long-term buying opportunities. Packaging giant Amcor PLC (ASX: AMC) could be poised to benefit from a variety of factors and may come out of the turmoil on top.

So, is the Amcor share price in the buy zone?

Why will Amcor finish on top?

Amcor is a dual-listed packaging giant with operations in over 40 countries and 250 packaging plants around the world. The company makes around 80% of its revenue from the sale of packaging for defensive consumer products such as food, beverages, hygiene and healthcare equipment.

The recent trend of consumers panic buying and stockpiling dry goods could translate to a positive for Amcor. This is because consumer demand has resulted in a surge in demand for flexible and rigid packaging from food producers.

Another positive for Amcor is the plunge in the oil price to 17-year lows. The company could benefit from the potential tailwind through a significant reduction in the price of resin, which is a major raw material used in plastic packaging and PET bottles.

Lastly, the low Australia dollar could be an additional positive for the Amcor share price. This is because the company generates more than 90% of its revenue from outside of Australia. A lower Australian dollar could, therefore, translate into a substantial earnings boost.

How has Amcor performed?

Despite its defensive qualities, the Amcor share price plunged to a low of $9.95 in mid-March from its February high of $16.50. The company’s share price came under pressure initially when a short-selling fund in the US targeted Amcor’s longevity.

According to the short-sellers, Amcor was ill-prepared for the shift to more environmentally conscious packaging and tipped a 60% decline in the company’s share price. Amcor released a statement defending the inaccurate and misleading statements that were intentionally designed to negatively impact the companies’ share price.  

Earlier this year, the company reported a net profit of US$252 million ($374 million) and earnings per share of 15.5 US cents for the half-year. Amcor also saw earnings before interest and tax (EBIT) increase 8% to US$699 million as a result of lower costs and earnings synergies from its $9 billion takeover of US-based food packaging firm Bemis.

Should you buy?

Amcor offers great growth potential and defensive appeal for the current market conditions. The company does operate 12 plants in China, which generate 4% of total sales, however, Amcor management has been quick to dismiss any impact of the COVID-19 pandemic on earnings.

The Amcor share price has already bounced more than 35% from its low this year. As a result, I would not jump ahead and buy shares in the company straight away. I think a prudent strategy would be to wait for the share price to consolidate before making an investment decision.

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Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Amcor Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.