What a fantastic six months it’s been for C.H. Robinson Worldwide. Shares of the company have skyrocketed 50.4%, hitting $190.10. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is there a buying opportunity in C.H. Robinson Worldwide, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is C.H. Robinson Worldwide Not Exciting?
Despite the momentum, we're swiping left on C.H. Robinson Worldwide for now. Here are three reasons we avoid CHRW and a stock we'd rather own.
1. Long-Term Revenue Growth Flatter Than a Pancake
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, C.H. Robinson Worldwide struggled to consistently increase demand as its $16.23 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 lower quality business.
2. Low Gross Margin Reveals Weak Structural Profitability
All else equal, we prefer higher gross margins because they make it easier to generate more operating profits and indicate that a company commands pricing power by offering more differentiated products.
C.H. Robinson Worldwide has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 7.4% gross margin over the last five years. Said differently, C.H. Robinson Worldwide had to pay a chunky $92.57 to its suppliers for every $100 in revenue. 
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).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, C.H. Robinson Worldwide’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
C.H. Robinson Worldwide isn’t a terrible business, but it doesn’t pass our bar. Following the recent rally, the stock trades at 30.5× forward P/E (or $190.10 per share). Beauty is in the eye of the beholder, but our analysis shows the upside isn’t great compared to the potential downside. We're pretty confident there are superior stocks to buy right now. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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