What a fantastic six months it’s been for Old Dominion Freight Line. Shares of the company have skyrocketed 59.2%, setting a new 52-week high of $224.44. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy Old Dominion Freight Line, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Old Dominion Freight Line Not Exciting?
Despite the momentum, we're sitting this one out for now. Here are three reasons you should be careful with ODFL 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. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Old Dominion Freight Line grew its sales at a mediocre 6.5% compounded annual growth rate. This fell short of our benchmark for the industrials sector.
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 Old Dominion Freight Line, its EPS declined by more than its revenue over the last two years, dropping 7.2%. This tells us the company struggled to adjust to shrinking demand.
3. New Investments Fail to Bear Fruit as ROIC Declines
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, Old Dominion Freight Line’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
Old Dominion Freight Line isn’t a terrible business, but it doesn’t pass our bar. Following the recent rally, the stock trades at 43.9× forward P/E (or $224.44 per share). This multiple tells us a lot of good news is priced in - we think there are better stocks to buy right now. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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