Over the last six months, ArcBest’s shares have sunk to $69.07, producing a disappointing 6.3% loss - a stark contrast to the S&P 500’s 15.7% gain. This was partly due to its softer quarterly results and 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? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think ArcBest Will Underperform?
Even with the cheaper entry price, we're sitting this one out for now. Here are three reasons we avoid ARCB and a stock we'd rather own.
1. Sales Volumes Stall, Demand Waning
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.
Over the last two years, ArcBest failed to grow its units sold, which came in at 21,051 in the latest quarter. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests ArcBest might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability. 
2. EPS Took a Dip Over the Last Two Years
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
Sadly for ArcBest, its EPS declined by more than its revenue over the last two years, dropping 28.1%. This tells us the company struggled to adjust to shrinking demand.
3. New Investments Fail to Bear Fruit as ROIC Declines
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared 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, 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 cheer for all companies making their customers lives easier, but in the case of ArcBest, we’ll be cheering from the sidelines. After the recent drawdown, the stock trades at 11.2× forward P/E (or $69.07 per share). This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are better investments elsewhere. We’d suggest looking at our favorite semiconductor picks and shovels play.
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