Over the past six months, PACCAR’s shares (currently trading at $88.17) have posted a disappointing 19.9% loss while the S&P 500 was down 10%. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Following the pullback, is this a buying opportunity for PCAR? Find out in our full research report, it’s free.
Why Does PACCAR Spark Debate?
Founded more than a century ago, PACCAR (NASDAQ: PCAR) designs and manufactures commercial trucks of various weights and sizes for the commercial trucking industry.
Two Things to Like:
1. Operating Margin Rising, Profits Up
Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.
Looking at the trend in its profitability, PACCAR’s operating margin rose by 6.3 percentage points over the last five years, as its sales growth gave it operating leverage. Its operating margin for the trailing 12 months was 14.1%.
2. New Investments Bear Fruit as ROIC Jumps
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared 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, PACCAR’s ROIC has increased significantly. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.
One Reason to be Careful:
Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, PACCAR grew its sales at a tepid 5.5% compounded annual growth rate. This wasn’t a great result compared to the rest of the industrials sector, but there are still things to like about PACCAR. 
Final Judgment
PACCAR has huge potential even though it has some open questions. With the recent decline, the stock trades at 11.5× forward price-to-earnings (or $88.17 per share). Is now a good time to initiate a position? See for yourself in our in-depth research report, it’s free.
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