Over the past six months, Hub Group’s shares (currently trading at $36.78) have posted a disappointing 14.6% loss, well below the S&P 500’s 11.7% gain. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Hub Group, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Do We Think Hub Group Will Underperform?
Even though the stock has become cheaper, we’re cautious about Hub Group. Here are three reasons why HUBG doesn’t excite us, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance can indicate 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, Hub Group grew its sales at a sluggish 1.6% compounded annual growth rate. This fell short of our benchmarks.
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 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
We like to invest in businesses with high returns, but the trend in a company’s ROIC can also be an early indicator of future business quality.
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 see the value of companies helping their customers, but in the case of Hub Group, we’re out. Following the recent decline, the stock trades at 18.4× forward P/E (or $36.78 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. Let us point you toward the most dominant software business in the world.
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