Hub Group currently trades at $45.77 per share and has shown little upside over the past six months, posting a small loss of 1.5%. The stock also fell short of the S&P 500’s 7.7% gain during that period.
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Why Do We Think Hub Group Will Underperform?
We’re cautious about Hub Group. Here are three reasons we avoid HUBG, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Hub Group grew its sales at a sluggish 1.6% compounded annual growth rate. This was below our standards.
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
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, Hub Group’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
Hub Group falls short of our quality standards. With its shares lagging the market recently, the stock trades at 24.3× forward P/E (or $45.77 per share). This valuation tells us a lot of optimism is priced in - we think there are better opportunities elsewhere. We’d recommend looking at one of our all-time favorite software stocks.
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