The past six months have been a windfall for Werner’s shareholders. The company’s stock price has jumped 62.7%, hitting $37.86 per share. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is there a buying opportunity in Werner, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think Werner Will Underperform?
We’re glad investors have benefited from the price increase, but we don't have much confidence in Werner. Here are three reasons why WERN doesn't excite us and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Regrettably, Werner’s sales grew at a tepid 5.1% compounded annual growth rate over the last five years. This fell short of our benchmark for the industrials sector.
2. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for Werner, its EPS declined by 44.6% annually over the last five years while its revenue grew by 5.1%. This tells us the company became less profitable on a per-share basis as it expanded.
3. New Investments Fail to Bear Fruit as ROIC Declines
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, Werner’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
Werner falls short of our quality standards. Following the recent rally, the stock trades at 32× forward P/E (or $37.86 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find more timely opportunities elsewhere. We’d suggest looking at an all-weather company that owns household favorite Taco Bell.
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