Rush Enterprises trades at $82.80 per share and has stayed right on track with the overall market, gaining 15% over the last six months. At the same time, the S&P 500 has returned 11.8%.
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Why Do We Think Rush Enterprises Will Underperform?
We’re passing on Rush Enterprises for now. Here are three reasons why there are better opportunities than RUSHA, plus one stock we’d rather own.
1. Revenue Tumbling Downwards
Long-term growth is the most important, but within industrials, a stretched historical view may miss new industry trends or demand cycles. Rush Enterprises’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 4.3% over the last two years. 
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 Rush Enterprises, its EPS and revenue declined by 6.3% and 4.3% annually over the last two years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, Rush Enterprises’s low margin of safety could leave its stock price susceptible to large downswings.
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).
Unfortunately, Rush Enterprises’s ROIC averaged 4.5 percentage point decreases each year 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
Rush Enterprises falls short of our quality standards. That said, the stock currently trades at 20.1× forward P/E (or $82.80 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are better investments elsewhere. We’d suggest looking at one of our top digital advertising picks.
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