Even though Old Dominion Freight Line (currently trading at $204.42 per share) has gained 5.4% over the last six months, it has lagged the S&P 500’s 12.7% return during that period. This may have investors wondering how to approach the situation.
Is now the time to buy Old Dominion Freight Line, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Old Dominion Freight Line Not Exciting?
We’re sitting this one out for now. Here are three reasons we avoid ODFL, plus one stock we’d rather own.
1. Demand Slips as Sales Volumes Slide
Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful Ground Transportation company because there’s a ceiling to what customers will pay.
Old Dominion Freight Line’s units sold came in at 2.71 million in the latest quarter, and they averaged 7.5% year-on-year declines over the last two years. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests Old Dominion Freight Line might have to lower prices or invest in product improvements to grow, factors that can hinder near-term profitability. 
2. EPS Barely Growing
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Old Dominion Freight Line’s EPS grew at 7.2% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 4.1% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.
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, Old Dominion Freight Line’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
Old Dominion Freight Line isn’t a terrible business, but it isn’t one of our picks. With its shares trailing the market in recent months, the stock trades at 32.9× forward P/E (or $204.42 per share). At this valuation, there’s a lot of good news priced in – we think there are better opportunities elsewhere. We’d recommend looking at an all-weather company that owns household favorite Taco Bell.
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