Over the past six months, ArcBest has been a great trade, beating the S&P 500 by 6.2%. Its stock price has climbed to $130.23, representing a healthy 18.2% increase. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy ArcBest, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Do We Think ArcBest Will Underperform?
We’re glad investors have benefited from the price increase, but we’re cautious about ArcBest. Here are three reasons why ARCB doesn’t excite us, plus one stock we’d rather own.
1. Weak Sales Volumes Indicate Waning Demand
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.
ArcBest’s units sold came in at 20,456 in the latest quarter, and over the last two years, averaged 1.8% year-on-year growth. This performance was underwhelming and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability. 
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 ArcBest, its EPS declined by 2.7% annually over the last five years while its revenue grew by 4.4%. This tells us the company became less 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).
Over the last few years, ArcBest’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 ArcBest, we’re out. With its shares outperforming the market lately, the stock trades at 15.3× forward P/E (or $130.23 per share). This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are more exciting stocks to buy at the moment. Let us point you toward the most entrenched endpoint security platform on the market.
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