Ryder trades at $140.44 per share and has stayed right on track with the overall market, losing 5% over the last six months while the S&P 500 is down 1.7%. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Is there a buying opportunity in Ryder, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Even though the stock has become cheaper, we're sitting this one out for now. Here are three reasons why R doesn't excite us and a stock we'd rather own.
Why Do We Think Ryder Will Underperform?
As one of the first companies to introduce the idea of leasing trucks, Ryder (NYSE: R) provides rental vehicles to businesses and delivers packages directly to homes or businesses.
1. Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Ryder grew its sales at a mediocre 7.2% compounded annual growth rate. This was below our standard for the industrials sector. 
2. 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 Ryder, its EPS declined by 14.2% annually over the last two years while its revenue grew by 2.6%. This tells us the company became less profitable on a per-share basis as it expanded.
3. Free Cash Flow Margin Dropping
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Ryder’s margin dropped by 15.6 percentage points over the last five years. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. Almost any movement in the wrong direction is undesirable because of its already low cash conversion. If the longer-term trend returns, it could signal it’s becoming a more capital-intensive business. Ryder’s free cash flow margin for the trailing 12 months was negative 3.3%.
Final Judgment
We see the value of companies helping their customers, but in the case of Ryder, we’re out. After the recent drawdown, the stock trades at 10.3× forward price-to-earnings (or $140.44 per share). This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are better investments elsewhere. We’d suggest looking at an all-weather company that owns household favorite Taco Bell.
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