Although Expeditors (currently trading at $124.05 per share) has gained 6.6% over the last six months, it has trailed the S&P 500’s 16.8% return during that period. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Expeditors, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think Expeditors Will Underperform?
We're sitting this one out for now. Here are three reasons you should be careful with EXPD and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Expeditors grew its sales at a tepid 6% compounded annual growth rate. This fell short of our benchmark for the industrials sector.
2. EPS Took a Dip Over the Last Two Years
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
Sadly for Expeditors, its EPS and revenue declined by 4.4% and 5.5% 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, Expeditors’s low margin of safety could leave its stock price susceptible to large downswings.
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. Over the last few years, Expeditors’s ROIC has unfortunately decreased significantly. 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 see the value of companies helping their customers, but in the case of Expeditors, we’re out. With its shares lagging the market recently, the stock trades at 23.5× forward P/E (or $124.05 per share). This valuation tells us a lot of optimism is priced in - you can find more timely opportunities elsewhere. We’d suggest looking at our favorite semiconductor picks and shovels play.
Stocks We Would Buy Instead of Expeditors
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