Werner’s 18.9% return over the past six months has outpaced the S&P 500 by 7.4%, and its stock price has climbed to $33.18 per share. This run-up might have investors contemplating their next move.
Is there a buying opportunity in Werner, 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 Do We Think Werner Will Underperform?
Despite the momentum, we're swiping left on Werner for now. Here are three reasons there are better opportunities than WERN and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Regrettably, Werner’s sales grew at a tepid 4.7% compounded annual growth rate over the last five years. This fell short of our benchmark for the industrials sector.
2. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for Werner, its EPS declined by 55.8% annually over the last five years while its revenue grew by 4.7%. 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).
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, Werner’s ROIC has unfortunately decreased significantly. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
We see the value of companies helping their customers, but in the case of Werner, we’re out. With its shares beating the market recently, the stock trades at 58.6× forward P/E (or $33.18 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find more timely opportunities elsewhere. Let us point you toward one of Charlie Munger’s all-time favorite businesses.
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