Hub Group currently trades at $48.66 per share and has shown little upside over the past six months, posting a middling return of 3.2%. The stock also fell short of the S&P 500’s 9.4% gain during that period.
Is now the time to buy Hub Group, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think Hub Group Will Underperform?
We don’t have much confidence in Hub Group. Here are three reasons you should be careful with HUBG, 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 experience short-term success, but top-performing ones enjoy sustained growth for years. Regrettably, Hub Group’s sales grew at a sluggish 1.6% compounded annual growth rate over the last five years. This was below our standards.
2. EPS Took a Dip Over the Last Two Years
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for 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
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).
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
Hub Group doesn’t pass our quality test. With its shares underperforming the market lately, the stock trades at 24.4× forward P/E (or $48.66 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. We’d suggest looking at an all-weather company that owns household favorite Taco Bell.
Stocks We Would Buy Instead of Hub Group
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