Over the last six months, Hub Group’s shares have sunk to $37.94, producing a disappointing 11.8% loss - a stark contrast to the S&P 500’s 11.8% 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? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think Hub Group Will Underperform?
Even though the stock has become cheaper, we’re sitting this one out for now. Here are three reasons why there are better opportunities than HUBG, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, Hub Group’s sales grew at a sluggish 1.6% compounded annual growth rate over the last five years. 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
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).
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 20.5× forward P/E (or $37.94 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think other companies feature superior fundamentals at the moment. Let us point you toward a dominant aerospace business that has perfected its M&A strategy.
Stocks We Like More Than Hub Group
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