Over the last six months, Old Dominion Freight Line’s shares have sunk to $151.78, producing a disappointing 11.9% loss - a stark contrast to the S&P 500’s 10.5% gain. 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 Old Dominion Freight Line, 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 Is Old Dominion Freight Line Not Exciting?

Despite the more favorable entry price, we're cautious about Old Dominion Freight Line. Here are three reasons there are better opportunities than ODFL and a stock we'd rather own.

1. Demand Slips as Sales Volumes Slide

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.

Old Dominion Freight Line’s units sold came in at 2.87 million in the latest quarter, and they averaged 2.8% year-on-year declines over the last two years. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests Old Dominion Freight Line might have to lower prices or invest in product improvements to grow, 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 Old Dominion Freight Line, its EPS declined by more than its revenue over the last two years, dropping 5.5%. This tells us the company struggled to adjust to shrinking demand.

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, Old Dominion Freight Line’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

Old Dominion Freight Line’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 27.9× forward P/E (or $151.78 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're fairly confident there are better stocks to buy right now. Let us point you toward a safe-and-steady industrials business benefiting from an upgrade cycle.

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