Over the past six months, Expeditors has been a great trade, beating the S&P 500 by 21.5%. Its stock price has climbed to $149.78, representing a healthy 25.4% increase. This performance 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? Get the full breakdown from our expert analysts, it’s free.
Why Is Expeditors Not Exciting?
We’re happy investors have made money, but we don't have much confidence in Expeditors. Here are three reasons we avoid EXPD and a 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. Unfortunately, Expeditors’s 2.9% annualized revenue growth over the last five years was sluggish. This fell short of our benchmarks.
2. Low Gross Margin Reveals Weak Structural Profitability
Gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.
Expeditors has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 13.5% gross margin over the last five years. Said differently, Expeditors had to pay a chunky $86.52 to its suppliers for every $100 in revenue.
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
Expeditors isn’t a terrible business, but it isn’t one of our picks. With its shares topping the market in recent months, the stock trades at 24.4× forward P/E (or $149.78 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're pretty confident there are superior stocks to buy right now. We’d recommend looking at an all-weather company that owns household favorite Taco Bell.
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