Shareholders of Heartland Express would probably like to forget the past six months even happened. The stock dropped 22.9% and now trades at $9.22. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Is there a buying opportunity in Heartland Express, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think Heartland Express Will Underperform?
Despite the more favorable entry price, we're swiping left on Heartland Express for now. Here are three reasons why you should be careful with HTLD 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. Heartland Express’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 6.8% over the last two years. Heartland Express isn’t alone in its struggles as the Ground Transportation industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time. 
2. Free Cash Flow Margin Dropping
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Heartland Express’s margin dropped by 10.8 percentage points over the last five years. Continued declines could signal it is in the middle of an investment cycle. Heartland Express’s free cash flow margin for the trailing 12 months was 7.9%.
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, Heartland Express’s ROIC has decreased significantly over the last few years. 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 Heartland Express, we’re out. Following the recent decline, the stock trades at 4.3× forward EV-to-EBITDA (or $9.22 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are better stocks to buy right now. Let us point you toward a safe-and-steady industrials business benefiting from an upgrade cycle.
Stocks We Would Buy Instead of Heartland Express
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