Hub Group’s stock price has taken a beating over the past six months, shedding 20.6% of its value and falling to $35.06 per share. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Is now the time to buy Hub Group, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Do We Think Hub Group Will Underperform?
Even though the stock has become cheaper, we don't have much confidence in Hub Group. Here are three reasons why we avoid HUBG and a stock we'd rather own.
1. Demand Slipping as Sales Volumes Decline
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 Air Freight and Logistics company because there’s a ceiling to what customers will pay.
Over the last two years, Hub Group’s units sold averaged 1.6% year-on-year declines. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests Hub Group 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.
Hub Group’s weak 3.4% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability 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).
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. Unfortunately, Hub Group’s ROIC has decreased 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 falls short of our quality standards. After the recent drawdown, the stock trades at 16× forward P/E (or $35.06 per share). This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are better stocks to buy right now. We’d suggest looking at an all-weather company that owns household favorite Taco Bell.
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