Heartland Express has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 13% to $12.55 per share while the index has gained 11.6%.
Is there a buying opportunity in Heartland Express, 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 Heartland Express Will Underperform?
We don’t have much confidence in Heartland Express. Here are three reasons we avoid HTLD, plus one 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. Unfortunately, Heartland Express’s 3.3% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the industrials sector.
2. Free Cash Flow Margin Dropping
Free cash flow isn’t a prominently featured metric in company financials and earnings releases, but we think it’s telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Heartland Express’s margin dropped by 14.5 percentage points over the last five years. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal it is in the middle of an investment cycle. Heartland Express’s free cash flow margin for the trailing 12 months was 14.8%.
3. New Investments Fail to Bear Fruit as ROIC Declines
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).
Over the last few years, Heartland Express’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
We see the value of companies helping their customers, but in the case of Heartland Express, we’re out. That said, the stock currently trades at 50.9× forward P/E (or $12.55 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 the most entrenched endpoint security platform on the market.
Stocks We Would Buy Instead of Heartland Express
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