Since February 2021, the S&P 500 has delivered a total return of 77.9%. But one standout stock has nearly doubled the market - over the past five years, Rush Enterprises has surged 149% to $71.67 per share. Its momentum hasn’t stopped as it’s also gained 22.2% in the last six months thanks to its solid quarterly results, beating the S&P by 15%.

Is now the time to buy Rush Enterprises, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Why Do We Think Rush Enterprises Will Underperform?

We’re glad investors have benefited from the price increase, but we don't have much confidence in Rush Enterprises. Here are three reasons we avoid RUSHA and a stock we'd rather own.

1. Revenue Tumbling Downwards

Long-term growth is the most important, but within industrials, a stretched historical view may miss new industry trends or demand cycles. Rush Enterprises’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 3.1% over the last two years.

2. Low Gross Margin Reveals Weak Structural Profitability

For industrials businesses, cost of sales is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics in the short term and a company’s purchasing power and scale over the long term.

Rush Enterprises has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 20.3% gross margin over the last five years. Said differently, Rush Enterprises had to pay a chunky $79.66 to its suppliers for every $100 in revenue.

3. EPS Took a Dip Over the Last Two Years

While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.

Sadly for Rush Enterprises, its EPS declined by more than its revenue over the last two years, dropping 11.1%. This tells us the company struggled to adjust to shrinking demand.

Final Judgment

We cheer for all companies making their customers lives easier, but in the case of Rush Enterprises, we’ll be cheering from the sidelines. With its shares beating the market recently, the stock trades at 19.5× forward P/E (or $71.67 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. Let us point you toward one of our top software and edge computing picks.

Stocks We Would Buy Instead of Rush Enterprises

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