United Parcel Service currently trades at $93.13 per share and has shown little upside over the past six months, posting a small loss of 4.6%. The stock also fell short of the S&P 500’s 17.5% gain during that period.
Is now the time to buy United Parcel Service, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think United Parcel Service Will Underperform?
We’re sitting this one out for now. Here are three reasons you should be careful with UPS, plus one stock we’d rather own.
1. Long-Term Revenue Growth Flatter Than a Pancake
A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, United Parcel Service struggled to consistently increase demand as its $89.93 billion of sales for the trailing 12 months was close to its revenue five years ago. This wasn’t a great result and signals it’s a low quality business.
2. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for United Parcel Service, its EPS declined by 8.4% annually over the last five years while its revenue was flat. This tells us the company struggled because its fixed cost base made it difficult to adjust to choppy 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.
Over the last few years, United Parcel Service’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
We see the value of companies helping their customers, but in the case of United Parcel Service, we’re out. With its shares underperforming the market lately, the stock trades at 12× forward P/E (or $93.13 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are superior stocks to buy right now. We’d suggest looking at a dominant aerospace business that has perfected its M&A strategy.
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