Over the past six months, Hub Group has been a great trade, beating the S&P 500 by 19.9%. Its stock price has climbed to $43.86, representing a healthy 24.7% increase. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy Hub Group, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think Hub Group Will Underperform?
We’re glad investors have benefited from the price increase, but we're swiping left on Hub Group for now. Here are three reasons there are better opportunities than HUBG and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Hub Group’s 1.6% annualized revenue growth over the last five years was sluggish. This was below our standards.
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 Hub Group, its EPS declined by more than its revenue over the last two years, dropping 28%. This tells us the company struggled to adjust to shrinking demand.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative 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. Unfortunately, Hub Group’s ROIC has decreased significantly 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
We cheer for all companies making their customers lives easier, but in the case of Hub Group, we’ll be cheering from the sidelines. With its shares topping the market in recent months, the stock trades at 23.1× forward P/E (or $43.86 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better opportunities elsewhere. We’d recommend looking at our favorite semiconductor picks and shovels play.
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